The rupee hovered around its lifetime low against the US dollar before recovering on Wednesday. The local unit traded near 83.30 a dollar as compared to a record closing low of 83.36 in the previous session.
The Indian currency has been unable to benefit from the recent softness in the greenback and drop in US Treasury yields along with a fall in crude oil prices.
The US dollar index was around 103.65 and has fallen nearly 3% in the month so far. Despite this, the rupee has largely remained in a narrow band and even hit a record low of 83.42 to the dollar on November 10.
The dollar has softened on expectations that the US Federal Reserve will not hike interest rates further. The US 10-year treasury yield held flat at 4.41% after minutes of the US Federal Reserve’s latest meeting showed officials agreed they would proceed “carefully” and only raise interest rates if progress in controlling inflation faltered.
Analysts believe the local unit will remain in a range as most of the depreciation is over and the volatility has been low. Outflows of foreign capital and weak macroeconomic data pressurized the rupee.
Since September 2023, FPIs have pulled nearly around ₹39,000 crore out of the domestic equity market amid strong risk-free returns in US debt markets.
Additionally, persistent local demand for the US dollar also weighed on the unit despite a rally in Asian currencies.
The depreciation in rupee is likely done so far. The local currency has fallen just around 1% this year and did not depreciate much when the US dollar index spiked from the levels around 99 to 107. The RBI intervention kept supporting the local currency,” said Amit Sajeja, VP Research – Commodities & Currencies at Motilal Oswal.
Sajeja expects the rupee to trade rangebound going ahead and end the calendar year within the range of 83-84/$.
Volatility in rupee has been subdued. It is expected to trade in a range going forward. Discouraging India’s trade balance and forex reserves data kept the local currency under pressure. Rising gold imports are a further cause of worry,” Sajeja added.
According to the latest government, India’s merchandise trade deficit hit an all-time high of $31.46 billion in October 2023 as gold imports jumped.
India’s gold imports in October surged 60% from a year earlier to a 31-month high.
However, primary markets are abuzz and a slew of initial public offerings (IPO) worth $900 million are lined up in the local market this week including the Tata Technologies IPO.
Analysts believe the rupee will try to catch on to the risk-on mode seen globally while the IPO-related inflows in the equities will further lend support to the currency.