Indian rupee opens lower on trade deficit concerns
The rupee fell early on Thursday on dollar strength as US Federal Reserve officials suggested more rate hikes were set to be delivered.
PTI reported that the Indian currency fell 24 paise to 79.39 against the US dollar in early trade.
Bloomberg showed the rupee was last changing hands at 79.4200 per dollar after opening weaker at 79.2125 from Wednesday’s close of 79.1613.
Reuters reported that the rupee opened lower against the dollar, building on Wednesday’s decline amid concerns over the nation’s record trade deficit. The rupee was trading at 79.34, compared with the previous close of 79.16 against the greenback.
A Reuters poll of foreign exchange strategists showed that the rupee would trade near its historic low in the coming three months, despite a recent recovery, based on a widening trade deficit and global flows into safe-haven US dollars.
After a month of trading near a nadir of 80.065 per dollar, the currency strengthened to a one-month high of 78.490 on Tuesday, providing relief for the Reserve Bank of India, which has been burning through foreign currency reserves, defending 80 per dollar.
A trader at a state-run bank told Reuters that Thursday’s decline was primarily on worries about how India would fund its record trade deficit when the US Fed is increasing interest rates.
The dollar index, which measures the greenback against six peers, was steady in early trade at 106.39, having eked out small gains overnight. It is up around 0.5 per cent this week, reversing the trend of the previous two weeks.
According to CME’s FedWatch tool, the market is pricing in a 58 per cent chance of a 50 basis point rate hike at the Fed’s September meeting and a 42 per cent chance of another massive 75 basis point increase.
“The dollar weakened last week after the (policy setting) Federal Open Market Committee meeting because the market wanted to believe that the Fed was pivoting in a dovish manner because of slowing growth,” Sim Moh Siong, currency strategist at the Bank of Singapore, told Reuters.
“This week, there are many more FOMC speakers pushing back against this idea, all singing the same tune: ‘we are not done, and you should expect more rate hikes,” he added.
Another Reuters poll earlier this week found that 70 per cent of analysts thought the dollar was yet to peak in this cycle, even after the dollar index hit a two-decade high in July.
That suggests more pain ahead for the rupee and, in turn, the RBI.
The focus now moves to the Indian central bank meeting on Friday, when the RBI is expected to hike again, after raising rates twice since May – to tame persistently high inflation in Asia’s third-largest economy.
