At 83.29, rupee drops to record low against dollar

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The rupee closed at a lifetime low at 83.29 per dollar as the greenback strengthened and US Treasury yields rose ahead of the Federal Open Market Committee’s policy decision.

The Indian unit ended four paise weaker against previous day’s close of 83.25. The FOMC is likely to keep its rate on hold.

Though there were foreign investor related inflows for investment in a couple of initial public offers and state-owned banks sold dollars on behalf of RBI, the Indian unit breached the previous record closing low of 83.27 as demand from dollars emerged from oil marketing companies, according to a forex dealer with a private sector bank.

Radhika Rao, Senior Economist & Executive Director, DBS Bank, said: “This year, USDINR has been gradually on the climb, tracking the regional price action and a resurgence in the broader dollar index.”

She observed that a strong intervention presence has kept a lid on the rupee volatility, whilst keeping the currency amongst the better performers in the region on year-to-date basis.

Rao said the DBS FX Strategist expect the USDINR to settle within a higher 83.0-85.0 band from 81.0-83.0 in 2022.

Caution on higher volatility

Amit Pabari, MD, CR Forex Advisers, said: “Remarkably, over the past two months, the USD/INR exchange rate closed above 82.90 in 95 per cent of the trading sessions, while it did not breach 83.30 in any of them. Out of 40 trading sessions, 38 closed above 82.90, and only 2 closed below this level.”

He cautioned that the remarkably low volatility experienced in recent years, particularly amidst substantial global headwinds, certainly suggests something significant.

“It’s essential to remember that lower volatility often signals a contrary opinion, indicating the potential for increased volatility in the near future. Therefore, if anyone is not adhering to their risk management policy and believes this period of low volatility will persist, we strongly recommend exercising caution.

“The breakout may not be imminent, and which direction it will occur in remains a major question. However, it’s advisable to fasten your seat belt and prepare for a potential ride into higher volatility,” Pabari said.