The rupee depreciated 3 paise to close at 81.95 against the U.S. currency on Wednesday as a strong dollar in the overseas market weighed on investor sentiments.
Forex traders said the Dollar index gained strength after U.S. Federal Reserve Chairman Jerome Powell reignited worries of a 50-bps rate hike in the Federal Open Market Committee (FOMC) meeting to be held on March 21-22, 2023.
At the interbank foreign exchange market, the rupee opened at 82.25 against the greenback and closed at 81.95, registering a fall of 3 paise over its previous close of 81.92 on Monday.
Stock and money markets were closed on Tuesday on account of Holi.
During the session, the domestic unit witnessed an intra-day high of 81.95 and a low of 82.29 against the American dollar.
Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, was trading 0.13% higher at 105.75.
“Powell said that the latest economic data released in the US are stronger than expected. He also added that the U.S. central bank would be prepared to increase the pace of rate hikes if the totality of the data were to indicate that faster tightening is warranted.”
“Odds of a 50-bps rate hike rose to 70% from 24% the previous day,” said Anuj Choudhary - Research Analyst at Sharekhan by BNP Paribas.
Shorter duration U.S. Treasury yields also surged, which led the U.S. dollar to a three-month high. Markets now expect terminal rates to be higher than previous estimates of 5.4%, Mr. Choudhary added.
Global oil benchmark Brent crude futures declined 0.16% to $83.16 per barrel.
“We expect the rupee to trade with a negative bias on risk aversion in global markets following Powell’s testimony,” Mr. Choudhary said.
A surge in the U.S. dollar and weak risk assets may also put downside pressure on the rupee. However, a weak tone in crude oil prices and FII inflows may support the rupee at lower levels, Choudhary added.
The 30-share BSE Sensex ended 123.63 points or 0.21% lower at 60,348.09, while the broader NSE Nifty declined 42.95 points or 0.24% to 17,754.40.
Foreign Institutional Investors (FIIs) were net buyers in the capital markets on Wednesday as they purchased shares worth ₹3,671.56 crore, according to exchange data.
“The Indian rupee depreciated after the greenback rallied on the back of a hawkish comment from Fed Chair Powell,” said Dilip Parmar, Research Analyst, HDFC Securities on today’s rupee market performance.
A broad index of greenback strength is nearing its highest level this year as the U.S. two-year treasury yield topped 5% for the first time since 2007.
All eyes will be on job opening data later on Wednesday for more clues on U.S. Fed policy after boosting bets on a 50 bps increase in March, Parmar said, adding that traders have already priced more than 100 bps of rate hikes over the next four meetings.
“Back home, spot USD/INR is expected to consolidate between 81.50 to 83. The recovery in domestic equities and lower crude oil prices are likely to keep the pair stable in the near term,” Mr. Parmar said.
