Mumbai, Dec 10 (PTI) The rupee dropped by 18 paise to an over 16-month low of 75.78 against the US dollar on Friday amid consistent foreign fund outflows and growing concerns about inflation.
At the interbank foreign exchange market, the local unit opened lower at 75.65 a dollar and later tanked to the day’s low of 75.85 in line with a lacklustre trend in equity markets.
The domestic currency pared some of the losses in the closing session to end at 75.78, its lowest closing level since June 22, 2020.
The rupee also declined for the third straight week with a weekly loss of 66 paise or 0.88 per cent against the greenback.
The US consumer inflation data for November would be released later on Friday with experts expecting the consumer price index (CPI) to rise further. The retail inflation had risen to 6.2 per cent in October which was the sharpest increase in 31 years.
Any hike in inflation would be seen as a case for tightening of monetary policy by the US Federal Reserve, which could lead to outflows of funds from emerging markets and riskier assets.
The US dollar index, which measures the greenback’s strength against the basket of six currencies, firmed up to 96.25 and was heading for a weekly gain.
Oil benchmark Brent crude was up 0.40 per cent at USD 74.72 per barrel while oil for the Indian basket inched up 0.62 per cent at USD 74.28.
On the equity front, benchmark indices Sensex and Nifty closed almost flat amid late recovery in select energy, banking and IT stocks. Sensex slipped by 20.46 points to end at 58,786.67 while Nifty inched 5.55 points lower to 17,511.30.
Foreign investors withdrew Rs 1,585.55 crore on a net basis from Indian equities on Thursday, according to the exchange data.
The Indian rupee is trading lower on strong dollar, FII outflows, correction in equity markets and possibility of faster tapering by the US Federal Reserve as the US shows resolve to tame inflation, said Praveen Singh, AVP – Fundamental Research, Commodities & Currencies, Sharekhan by BNP Paribas.
At the same time, India’s central bank remaining accommodative is yet another negative factor for the domestic currency. High trade deficit and spike in food prices are also weighing on the rupee, Singh noted.
“We expect the INR to remain weak on concerns over the Omicron variant and the possible Fed tightening. However, expectations that Omicron may be less severe, may prevent a sharp downside in Rupee. Rupee may find support around Rs 75-74.80, while resistance is seen around Rs 76,” he said.
Sriram Iyer, Senior Research Analyst at Reliance Securities said, the rupee depreciated against the US dollar on Friday and for the third straight week on bets that high US inflation could prompt a quicker unwinding of bond purchases and earlier-than-expected rate hike by the Federal Reserve.
Additionally, suspected corporate and equity-related dollar outflows also weighed on the local unit.
Traders now await local IIP and manufacturing data for further triggers.
Emkay Global Financial Services said the forex market has been very volatile this week, with USD-INR spot breaching the highest level since June 2020. The move suggests that the forex market is pricing in next week’s hawkishness from the Fed.
Also, there are expectations that the US CPI data will come higher than expected, acting as a catalyst to the dollar rally and making it a big fiscal and monetary concern.
“A hotter inflation would put pressure on the Fed to not just be aggressive with tapering the quantitative easing but also considering rate hikes next year. So next week in USD-INR spot, we expect it to trade within 75.50-76.50 with a positive bias,” it said.
