Rupee Falls Amid Broad Dollar Strength, RBI Likely Capped Losses

Rupee declined to nearly a 10-month low due to the strength of the Dollar, which has also led to losses in other Asian currencies.

However, the losses were limited by possible interventions from the Reserve Bank of India (RBI), with state-run banks selling Dollars.

The Rupee closed at 82.95 against the US currency, down from the previous close of 82.84. Earlier in the day, it had fallen to 83.07, the lowest since October 20, 2022. This decline was mitigated by Dollar sales facilitated by state-run banks, potentially on behalf of the RBI.

V Lakshmanan, the head of treasury at Federal Bank, noted that the Rupee seems to be following cues from the Dollar index, which suggests a prevailing strength in the Dollar.

Lakshmanan added that support for the Rupee around the 83-per-Dollar mark might be expected, as the RBI is likely to intervene to stabilise the forex market.

Asian peers

Asian currencies collectively experienced losses ranging from 0.1 per cent to 0.7 per cent. In addition, the offshore Chinese yuan fell to 7.28, the lowest in over a month, influenced by increased US Treasury yields.

US Treasury yields had risen by nine basis points to 4.16 per cent after US producer price inflation in July surpassed economists’ forecasts. This increase occurred despite a slight drop in the University of Michigan survey’s measure of long-term inflation expectations.

The boost in the US yields drove the Dollar index above 103 on Monday, adding to the 0.3 per cent rise observed on Friday.

Future premiums for USD/INR dropped, with the one-year implied yield declining by four basis points to 1.58 per cent.

Investors are awaiting retail inflation data for July, and attention will also be on US retail sales data on Tuesday, followed by the release of the Federal Reserve’s meeting minutes on Wednesday.

The wholesale price-based inflation rate was in the negative territory for the fourth straight month in July at (-)1.36 per cent, on the back of easing fuel prices, even though food articles turned costlier.

Trading in local forex and money markets will be closed on Tuesday and Wednesday due to local holidays