The rupee hit a new low of 84.38 per dollar on Thursday as foreign investors continued to sell domestic equities and crude oil prices rose. Caution ahead of the US Federal Reserve meeting outcome further pressured the Indian unit.
With the dollar strengthening following the US presidential election results and US yields rising, market participants said the Reserve Bank of India (RBI) is allowing a gradual depreciation of the rupee in line with its Asian peers.
The local currency had touched a new low of 84.28 per dollar on Wednesday after Republican candidate Donald Trump won a decisive victory in the 47th United States (US) presidential election, defying expectations and securing more votes than Kamala Harris. “RBI seems to have gone slow on dollar selling following the rise in US yields, with more FPI outflows expected in the coming months… With Asian currencies falling, US dollar rising and yields rising, RBI has no choice but to let the rupee fall to ensure that the REER (real effective exchange rate) remains competitive for our exports. If the FOMC (Federal Open Market Committee) is a bit accommodative in its stance or does not cut rates today, or says it will not cut in December, we could see another decline in the rupee towards 84.50 levels followed by a slow and steady rise,” said Anil Kumar Bhasali, head of treasury and executive director, Finrex Treasury Advisors LLP. Trump is seen to strengthen the dollar and push up US yields, driven by anticipated populist measures that could raise lending, inflation and yields. Trump has threatened to impose 10 per cent tariffs on imports from all countries and ban Chinese goods. Trump has promised to impose a 60 percent duty on the US currency.
“The former president (Joe Biden) has preferred a weaker US dollar. But we think the policies Trump has advocated are likely to drive the USD higher. This fundamental logic is driven by increased tariff risks, geopolitical uncertainty, and expectations of a more expansionary fiscal agenda,” Morgan Stanley said in a note. The rupee has declined 0.38 per cent in the last two sessions. However, it performed better than most of its Asian counterparts. It ranked fifth among the best-performing Asian currencies, while the Malaysian ringgit declined the most during this period.
