The Indian rupee plunged to another record low on Thursday. The domestic currency opened marginally lower at 80.01 per dollar on Thursday against previous close of 79.98. Soon, it hit a lifetime low of 80.063 against the US dollar. Strengthening dollar, rising crude oil prices and risk aversion in the global market have pulled the currency down. The local unit has remained under pressure throughout this calendar year, due to monetary policy tightening of the developed markets economies and continuous outflow of the foreign portfolio investors from the capital markets. India’s widening trade deficit also raised the risks for the currency.
1) Indian currency has lost over 7 per cent of its value this year. The Reserve Bank of India (RBI) is prepared to sell a sixth of its foreign exchange reserves to defend rupee, news agency Reuters reported. The fall would have been far bigger if the central bank had not stepped in to arrest the decline, sources mentioned.
2) The US dollar rose to near two-decade highs during the previous session. The anticipation of another aggressive rate hike by the US Federal Reserve to tame decade-high inflation, has surged the dollar value recently. However, the buoyancy in the dollar index seems to be petering out, mentioned analysts.
3) “On India’s foreign capital portfolio flows as well, July trends show Foreign Institutional Investors (FII) outflows from the equity markets have slowed during the first fortnight, while Indian markets have managed to fetch some gains during the last 30 days, even when pain persists in global equities. Perhaps a change in trend indicates FIIs are having a change of heart for India," said Hitesh Jain, senior vice president – institutional research, YES Securities.
4) Investors will keenly watch the outcome of monetary policy meeting by the European Central Bank scheduled on July 21. “We expect the Governing Council to hike policy rates by 25 bps and provide additional details of its sovereign backstop," says Goldman Sachs.
“Although the sharp depreciation of the euro, recent central bank actions abroad and the chance of a further rise in survey inflation expectations suggest that a 50 bps move is possible, we believe that a quarter-point increase remains likely," it added.
5) Commenting on USD-INR outlook for Thursday, Anand James, chief market strategist at Geojit Financial Services, said, “As has been the stance all through the last two days, we will continue our vigil along this the 79.85-80.15 band before playing directional moves, with 79.95 continuing to be a crucial pivot."
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