The rupee fell to its lowest in nearly 11 months during intra-day trade on Wednesday, owing to a rally in oil prices and weakness in peer currencies, including the Chinese yuan.
“USD-INR spot closed at 83.14 to hit its lowest levels in 11 months on the back relentless demand from oil marketing companies and speculative demands,” said Anindya Banerjee, head of research for forex and interest rates, Kotak Securities, adding that a weak yuan and rising oil prices are sources of instability from the world and worth monitoring.
The rupee had slid 29 paise against the US dollar on Tuesday after the Caixin service PMI data for August indicated sluggish demand for services in the Chinese economy. The Chinese yuan and the South Korean won fell 0.04% and 0.002%, respectively on Wednesday due to the weak cues from China.
In recent sessions, the rupee’s weakness seems to be factoring in the possibility of another rate hike by the Federal Reserve, say analysts. While economic data has generally been supportive of the Federal Reserve keeping rates unchanged, the persistent pressure from inflation may push the US central bank towards considering another rate hike, possibly in their upcoming September meeting.
As a result of these factors, the rupee’s trading range has shifted lower and can now be expected to fall within the 82.90-83.30 range. “Traders and investors will closely monitor developments in the currency and commodity markets, as well as any news related to the Federal Reserve’s policy decisions, to assess the rupee’s future movements,” said Jateen Trivedi, VP Research Analyst, LKP Securities.