Strong US dollar, tepid foreign inflows to blame as Rupee hits record low of 83.42

The rupee closed at a record low of 83.42 against the dollar on Friday tracking weak Asian currencies led by the yuan and a strong demand for the dollar – a day the country’s forex reserve was almost close to its all-time high level.

After closing at 83.15 to the dollar on Thursday, the domestic unit hit a low of 83.43 against the greenback on Friday. The rupee had earlier recorded its lowest closing of 83.40 on December 13.

Forex dealers said the dollar’s global strength as reflected in the dollar index (DXY) and tepid foreign inflows weighed on the rupee.

The DXY which measures the dollar’s strength against a basket of six currencies was trading at 104.33, a gain of 0.88 per cent against the previous close of 103.41.

The fall in the Chinese yuan which dipped to a four-month low against the dollar has been attributed to expectations of more monetary easing by the Chinese central bank.

On Thursday, Xuan Changneng, deputy-governor of the People’s Bank of China, said that it has room to cut the reserve requirement ratio – liquidity or cash that banks are required to hold as reserves – to boost its economy.

In January, People’s Bank announced a reduction to the tune of 50 basis points effective February 5 which was forecast to inject 1 trillion yuan ($140 billion) of liquidity into the market

Analysts said apart from the weakness in the yuan, the rupee got dragged downwards by strong dollar demand in the last leg of the trade likely from oil companies.

While the RBI is understood to have sold some dollars earlier in the session, it was not active later in the trade. Provisional data showed foreign portfolio investors (FPIs) offloading stocks worth Rs 3,310 crore on Friday.

“We expect the rupee to trade with a negative bias on the strong dollar and expectations of a bounceback in oil prices. However, a positive tone in the domestic markets may support the rupee,” Anuj Choudhary, research analyst, Sharekhan by BNP Paribas said.

Forex score

India’s forex reserves increased $6.3 billion to $642.4 billion for the week ended March 15, data from the RBI showed.

In October 2021, the reserves had reached an all-time high of $645 billion.