The rupee strengthened early Wednesday after reversing losses in the previous session, one day after closing at its all-time low of 77.44 against the dollar.
Bloomberg reported that the rupee last changed hands at around 77.19 per dollar, and the front-end futures contract on the NSE showed bets in favor of the currency, trading at 77.20 against the US dollar. dollars after opening at 77.3225 on Wednesday.
PTI reported that the rupee gained 17 paise to 77.17 against the US dollar early in trading.
On Tuesday, the currency broke two days of sharp losses, gaining 10 paise to end at 77.34 against the US dollar, supported by a rebound in regional currencies and a decline in crude oil prices.
Traders also said the Reserve Bank of India may have stepped in after the rupee fell to its lifetime low of 77.44 on Monday.
But volatility is expected to be high on Wednesday ahead of US inflation data, which is expected to show some calm after the blowout numbers in previous months.
Still, the US Federal Reserve is poised to raise interest rates aggressively this year, with interest rate futures pointing to a nearly 80 percent chance of a 75 basis point hike in June.
“We expect the rupee to remain volatile in today’s session pending US inflation data and could face strong resistance around the 77.00 levels, while the upward support is at 78.10,” said Rahul Kalantri , VP Commodities at Mehta Equities.
The dollar index witnessed high volatility and extended gains to settle at 103,935, up 0.15% on Tuesday. The dollar index extended its gain after a member of the US Federal Reserve said the rate hikes of 75 basis points could be seen at the next policy meetings,” he added.
Capital outflows from emerging markets are the result of aggressive US monetary policy. Investors tend to hide in US assets during a rate hike cycle in anticipation of the resulting slowdown in economic activity.
Like other emerging market countries, India has witnessed sharp outflows from its capital markets, which has eroded the country’s rupee and foreign exchange reserves in recent weeks.
The exodus of foreign capital is unlikely to reverse anytime soon as the war between Russia and Ukraine shows no signs of abating.
While the RBI has stepped in, a Bloomberg report showed that analysts expect the central bank to mount a more limited defense, aiming to limit the rupee’s losses from the worst speculative attacks as capital flows shift globally and the Fed this year. expects another rate hike.
India’s forex reserves have fallen below $600 billion for the first time in a year, weighted by continued capital outflows and the weakness of the rupee following the dollar’s broad appreciation in recent months.
Foreign exchange reserves have fallen for eight weeks in a row, wiping out nearly $34 billion, or about 5.4 percent, since Russia invaded Ukraine on Feb. 24.
“The RBI will be careful to fight arrogant speculators, not the Fed,” Vishnu Varathan, chief of economics and strategy at Mizuho Bank, told Bloomberg.
That is, caution warns against ignoring broad dollar trends. After all, it’s harder to build a $600 billion cash reserve than it is to burn,” he added.