The rupee sank to a new low on Monday, marking its weakest close for the third straight session as the dollar advanced, trailing a slew of currencies during lifetime or multi-year lows, driven by fears that aggressive policy tightening by major central banks would harm economic growth.
Bloomberg showed the rupee was last at 81.5675, after crashing to a new record of 81.5225 and crashing to 81.6612, its weakest ever, during Monday’s session.
PTI reported that the rupee plummeted 54 paise to close for the time being at a new all-time low of 81.63 against the US dollar.
On Thursday and Friday, the domestic currency had finished all-time lows and today marks the third consecutive session of record lows that have been broken.
“The panic is being created by the dollar index, which is witnessing strong buying as a strong hedge against interest rate hikes and inflation cycle. The downward trend of the rupee will continue as long as positive triggers are not seen from the forefront of inflation,” Jateen Trivedi, Vice President – Research Analyst at LKP Securities, told ANI.
“The next trigger for the rupee next week is the RBI policy which will provide some respite to the rupee decline. The rupee range can be seen between 80.50-81.55 before the RBI policy,” added he to it.
Later in the week, the Reserve Bank of India will also raise interest rates, but by how much have policy makers divided.
As a result of the RBI’s market intervention to protect the weakening rupee and for the country’s trading regime, India’s foreign exchange reserves have steadily declined in recent months. Another possible explanation for the decline in the rupee is this depletion.
The Indian rupee is likely to remain weaker as investors expect the US Fed to continue raising interest rates aggressively to cool inflation, Sriram Iyer, Senior Research Analyst at Reliance Securities, told PTI.
“The focus is now shifting to this week’s RBI meeting, whose decision is expected on Friday. We expect the RBI to raise interest rates by 50 bps to cool the stubbornly high inflation and prevent the currency from weakening further Iyer added.
A dollar meter rose to another record, keeping the yen just below last week’s point that elicited intervention from Japanese authorities.
The yuan was nearing the weak end of its trading band even as China brought back an instrument to make it more expensive to bet against the currency through onshore derivatives. The Korean won is trading at its lowest level since 2009.
“It’s a king’s dollar — we’ve seen currencies come under pressure across Asia,” Sian Fenner, senior Asia economist for Oxford Economics, told Bloomberg TV. “It’s adding to inflationary pressures and more central banks are raising interest rates more than we’ve seen in the past.”
The worst hit was the British pound, the latest bad omen as market stress mounts.
The fallout from last week’s UK budget statement sent markets tumbling for a second day on Monday, pushing the pound to a record low.
Sterling fell nearly 5 percent at one point during the Asian trading day, breaking through the lows of 1985 and reaching $1.0327. Thinner liquidity during the Asia session worsened the moves and the currency had last climbed to $1,072.
“The market is now treating the UK as if it were an emerging market,” said Rabobank strategist Michael Every in Singapore.
“If this also affects European trade, you will at least get a public statement from the BOE threatening (action) and… That.”
The dollar rally is also a reflection of investors increasing their flights to safety as Asian markets risk experiencing crisis stress again as two of the region’s major currencies have collapsed under the onslaught of the relentless strength of the US dollar. dollar – the yen and the yuan.
The widening gap between the ultra-hawkish Federal Reserve and moderate policymakers in China and Japan is causing the yuan and the yen to fall.
The decline in the yuan (renminbi) and the yen is making things worse for everyone and jeopardizing the region’s reputation as a top destination for risk investors. At the same time, other Asian countries rely heavily on their foreign exchange reserves to offset the effects of the dollar.
“The renminbi and yen are big anchors, and their weakness threatens to destabilize currencies for trade and investment in Asia,” Vishnu Varathan, chief economics and strategy at Mizuho Bank, told Bloomberg.
“We are already in some ways on our way to the levels of stress of the global financial crisis; then the next step would be the Asian financial crisis if the losses get bigger,” he added.
If the decline in the currencies of the region’s two largest economies causes foreign investors to take money out of Asia, a full-blown crisis could ensue.
The declines could trigger a vicious cycle of competitive devaluation, a drop in demand and a loss of consumer confidence.
“Currency risk is a bigger threat to Asian countries than interest rates,” Taimur Baig, chief economist at DBS Group in Singapore, told Bloomberg. “Ultimately, all of Asia are exporters, and we could see a 1997 or 1998 reprise without the massive collateral damage.”