The rupee depreciated by 11 paisa on Tuesday to end the day near the 84 per dollar mark, tracking the weakness in its Asian peers and foreign outflows, said dealers.
The local currency settled at a new low of Rs 83.96 per dollar, against Rs 83.85 a dollar on Monday after touching the day’s low of 83.97/$. The Reserve Bank of India (RBI) intervened in all segments of the foreign exchange market, which prevented any sharp depreciation.
Market participants said that there was strong demand for the greenback in the off-shore market, which further weighed on the Indian unit.
The dollar index, which measures the strength of the dollar against a basket of six major currencies, rose to 103.11 on Tuesday, against 102.68 on Monday.
RBI intervened through dollar sales in the non-deliverable forwards (NDF) market, spot over-the-counter (OTC) and futures market to contain the volatility in the exchange rate, they said.
“The RBI was there in the NDF market before the trading hours, and then they were also in the spot and futures market,” said a dealer at a state-owned bank. “We see the rupee touching Rs 84 per dollar in the next 2-3 trading sessions,” he added.
The local currency had depreciated to 84.20 per dollar in the off-shore market on Monday post trading hours. However, it opened at 83.85 per dollar on Tuesday as the RBI intervened in the NDF market before the trading hours.
“The RBI was present in all the three markets, and they could have sold around $1 billion today (Tuesday),” said Anil Kumar Bhansali, head of treasury and executive director at Finrex Treasury Advisors LLP.
RBI has built a healthy pool of foreign exchange reserves, which is at $667 billion for the week ended July 26, equivalent to around 11 months of imports projected for 2024-25.
The central bank has always maintained that it intervenes in the foreign exchange market to curb volatility and does not target any particular level.
“The rupee is expected to be in a range of Rs 83.85 per dollar to Rs 84.05 per dollar tomorrow (Wednesday) with buying of the dollar expected to continue and RBI supporting the rupee at a particular level,” Bhansali added.
Fears of a potential recession in the US, coupled with the unwinding of a widely used Yen carry trade, have significantly influenced sentiment in the currency market.
“The rupee has lost out as FPIs have been pulling out in the last few sessions. A part could be attributed to the ‘Yen investors’ moving out,” said Madan Sabnavis, chief economist at Bank of Baroda.
“Carry trade using the Yen, which has always been popular with investors, loses its sheen as those who are unwinding will book losses. As this came just after the unemployment news in the US, it got an exaggerated response where it was interpreted as indicating a recession. It can be said that the markets had reacted with fickle emotion rather than on the basis of fundamentals,” said Madan Sabnavis, chief economist at Bank of Baroda.
The rupee has depreciated 0.7 per cent against the dollar in the current financial year, and 0.3 per cent in August so far.
First Published: Aug 06 2024 | 6:30 PM IST
