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Rupee hits 80 to a dollar as global equity slump hammers currencies

Rupee hits 80 to a dollar as global equity slump hammers currencies.

The Rupee breached the 80-to-a-dollar mark to hit a fresh record low while bond yields climbed six basis points, tracking a fall in global equities on the back of the Federal Reserve’s hawkish rhetoric at Jackson Hole.

At 9.30 am, the home currency was trading at 80.03 against the US dollar, down 0.25 percent from its previous close. The Rupee opened at 80.07 and touched a record low of 80.13 a dollar.

The 10-year bond yield increased 6.27 percent from its previous close of 6.21 percent. Bond yield and prices move in opposite directions.

Among Asian currencies, the South Korean won declined 1.3 percent, the Thai Baht lost 0.8 percent, the Japanese yen 0.64 percent, China Renminbi 0.6 percent, the Taiwan dollar 0.6 percent, Malaysian ringgit 0.5 percent, the Indonesian rupia 0.43 percent, Singapore dollar 0.34 percent.

US Fed Chair Powell reiterated the central bank’s unconditional commitment to tackle inflation, highlighting risks posed by elevated and extended periods of high price growth. In reaction, rate-sensitive short-end and 10-year yields adjusted, whilst stocks sold off sharply.

“Powell meets our expectations at Jackson Hole. Chair Powell’s speech at the 2022 Jackson Hole Economic Symposium broadly met our expectations and reinforces our view the Fed will remain hawkish, even as the economy enters recession later this year,” said Nomura Research.

“We expect a recession to start in Q4 2022, but increasingly entrenched inflation will likely result in continued Fed tightening through February before cuts in Q3 2023,” it added.

Analysts said the revamped ADP employment report and August NFP would focus on potential implications for the size of the Fed’s next rate hike in September.

Powell, in his address last week at the Fed’s Jackson Hole symposium, flagged the likely need for restrictive monetary policy for some time to curb high inflation and cautioned against loosening monetary conditions prematurely.

“USDINR is on a strong wicket, with a positive USD backdrop. A strong US Dollar Index, high US bond yields with a deeply inverted yield curve and weak equity markets make it challenging for FPI and carry trade flows in EMs. However, the speed of the up move will be closely regulated by RBI. RBI has twin objectives of not letting the Rupee become a weak outlier and also, they do not want the USDINR to become too volatile,” said Anindya Banerjee, VP, Currency Derivatives & Interest Rate Derivatives at Kotak Securities.

“This means they may continue to sell USD as the spot and forwards moves to a fresh all-time high. However, this may not alter the trajectory of the pair and the path of least resistance would remain upward,” Banerjee said.

He expects the Rupee to be between 79.70 and 80.50 over the next two weeks.

Bloomberg quoted the Rupee at 80.0363 compared to its previous close of 79.8712.

But analysts said foreign portfolio investments and the Reserve Bank of India could limit the Rupee’s damage. 

In a note, “rupee breaches 80/$ mark”, said Anindya Banerjee, VP for Currency Derivatives & Interest Rate Derivatives at Kotak Securities.

“A strong US dollar Index, high US bond yields with an deeply inverted yield curve and weak equity markets all makes it challenging for FPI and carry trade flows in EMs. However, the speed of the up move will be closely regulated by RBI,” he said.

“The RBI has twin objectives of not letting the Rupee become a weak outlier and also, they do not want the USDINR to become too volatile. This means they may continue to sell USD as the spot and forwards moves to a fresh all-time high. However, this may not alter the trajectory of the pair and the path of least resistance would remain upward,” added Mr Banerjee.

Rupee hits 80 to a dollar as global equity slump hammers currencies
Rupee hits 80 to a dollar as global equity slump hammers currencies

Rupee hits 80 to a dollar

The dollar index scaled to a two-decade peak of 109.4 in early Asia trade, with greenback strength pushing other major currencies to new lows and putting pressure on its emerging markets counterparts.

Today’s moves extended dollar gains made on Friday when US Federal Reserve Chair Jerome Powell warned there’d be “some pain” for households and businesses as it will take time for the Fed to control inflation.

“Powell made it clear that there is no dovish pivot as some market participants had expected,” Carol Kong, senior associate for currency strategy and international economics at Commonwealth Bank of Australia, told Reuters.

“I think for this week, the (US dollar index) is going to track even higher towards 110 points, just as market participants continue to price in more aggressive tightening cycles by the major central banks.”

The bloodbath in domestic equities did not help the Rupee, with the Sensex crashing over 1,000 points and the rising crude prices.

Still, crude oil prices climbed as expected. OPEC will cut output if needed to support prices; conflict in Libya and rising demand amid soaring natural gas prices in Europe helped offset a dire outlook for growth in the United States.

US West Texas Intermediate (WTI) crude futures jumped $1.09, or 1.2 per cent, to $94.15 a barrel at 0241 GMT, adding to a 2.5% gain last week.

Brent crude futures rose 89 cents, or 0.9 per cent, to $101.88 a barrel, extending a 4.4 per cent gain last week.

“Oil prices were stronger amidst the ongoing pressure on fuel demand from Europe’s energy crisis, and supply constraints,” National Australia Bank commodities analysts said in a note.

Heavy clashes in Libya’s capital, which killed 32 people on the weekend, sparked concern that the country could slide into a full-blown conflict, which could again disrupt crude supply from the OPEC nation.

Before Friday’s hawkish remarks from Federal Reserve Chairman Jerome Powell that the United States faced a period of weak growth amid more rate hikes, both crude benchmark contracts had traded lower. The dollar had risen as a result.

“While a strong dollar restrains broad commodity prices, the undersupply issue in the oil markets will probably continue to support the upside bias,” CMC Markets analyst Tina Teng told Reuters.

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