Rupee hits new high of 78.29 amid risk aversion in markets, continued FII selling and inflation fears

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The Indian rupee hit a new high of 78.29 against the US dollar on Wednesday as continued outflows of foreign funds from financial markets, particularly stock markets, risk aversion in global markets put pressure on the local currency. The fall comes amid selling off in emerging market stocks and currencies ahead of US Fed Chairman Jerome Powell’s testimony to the US Congress later in the day. Foreign exchange analysts said the local unit was also hampered by heightened concerns over India’s inflation and current account deficit and high crude oil prices.

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“We remain cautious on the INR going forward, given the weakening fundamentals and a challenging external environment. A situation like this, where the tail (forward) could wag the dog ( spot), requires us to be more vigilant and cautious,” said Anindya Banerjee, Vice President, Currency and Interest Rate Derivatives at Kotak Securities.

Rahul Kalantri, VP Commodities, Mehta Equities, said: “The US Federal Reserve’s aggressive interest rate hike plans and continued FII selling are putting pressure on the rupiah. Widening trade deficits and rising crude oil prices are also limiting the rupiah’s gains. We expect the Rupee to remain volatile this week and may test its resistance level of 78.45.

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