The Indian rupee today fell 39 paise to all-time low of 81.18 against US dollar in early trade on the back of US Treasury yields climbing to fresh multi-year highs and dollar demand from importers. On Thursday, the rupee had suffered its biggest single session percentage decline since February, due to lack of aggressive intervention by the Reserve Bank of India (RBI) and a very US hawkish Federal Reserve rate outlook, traders said.
The rupee, after a period of outperformance, was among the biggest losers among Asian peers on Thursday.
“RBI might step aside to allow the Rupee to adjust as the Fed is likely to keep rates higher for longer. This would have made aggressive intervention unsustainable," said forex advisory firm IFA Global.
“One of the reasons that RBI couldn’t rescue the fall in the currency was inadequate liquidity in the banking system which is currently in deficit. RBI's intervention in the spot market could make the case worst for the banking system liquidity amid short-term interest rates going higher. It will be interesting to watch RBI monetary policy next week as it comes up with some tools to smoothen the liquidity and talks about the current run in the currency and falling reserves," CR Forex Advisors said in a note.
The 10-year US treasury yield overnight climbed above 3.70% and the two-year yield reached a high of 4.16%.
“Circumstances have changed as globally the volatility into the forex market post the Fed meeting has peaked to the highest. All the currencies made drastic fall v/s US dollar expecting Fed to be more aggressive to raise interest rates up to 4.6% this year," said CR Forex Advisors in a note.
US equities declined overnight, with S&P 500 Index falling to its lowest level in over two months. And Indian benchmark gauge Sensex fell 300 points in early trade.
Analysts see the possibility of further weakness in rupee. “Historically, whenever a big figure in rupee has been taken out, a move of 2.5 rupees an average has been seen within one month of breakout. Overall, with RBI's absence, the rupee is going to test new lows in the short term and we expect the currency to weaken up to 81.80 and 82.00 levels in the near term," CR Forex Advisors said in a note.
