The rupee fell to its lowest-ever closing level of 83.54 against the US dollar on Tuesday. This drop was influenced by ongoing tensions in West Asia and rising US Treasury yields. Within the day, the rupee hit an intraday low of 83.56 but seemed to stabilize later, possibly due to intervention by the Reserve Bank of India (RBI). By the end of trading, the rupee had fallen by 9 paise or 0.10%, surpassing its previous low of 83.45 from the day before.
According to Kunal Sodhani, who works in treasury at Shinhan Bank, the RBI’s actions in the market likely helped to reduce volatility. Sodhani also mentioned that the dollar index had risen above 106 due to reduced expectations of significant interest rate cuts by the US Federal Reserve (Fed).
Kunal Sodhani mentioned that the tension between Iran and Israel has made investors more cautious (risk-off sentiment). This caution could cause the dollar to rise even more, possibly reaching 107.20.
On Tuesday, both the Sensex and Nifty, which are key stock market indices in India, closed lower for the third consecutive session. The Sensex dropped by 456.1 points or 0.6% to end at 72,943.68, while the Nifty declined by 124.6 points or 0.6% to close at 22,147.90.
Despite reaching an all-time low, the Indian rupee performed relatively well compared to other emerging market currencies on Tuesday. Currencies like the Indonesian Rupiah, South Korean won, Taiwanese dollar, Japanese Yen, Thai baht, and Chinese yuan all depreciated against the US dollar.
The decline in Asian currencies was influenced by ongoing geopolitical tensions and an increase in US Treasury yields. Concerns over potential retaliation between Israel and Iran added to the pressure on the rupee and other Asian currencies.
The dollar index, which measures the strength of the US dollar against other major currencies, increased by 0.13% to reach 106.34 – its highest level in almost six months. This rise was driven by a 10-year US Treasury yield reaching 4.69%, its highest since November. Expectations of aggressive interest rate cuts by the Federal Reserve have diminished following stronger-than-expected retail sales data in the US.
Anuj Choudhary, a research analyst at Sharekhan by BNP Paribas, mentioned that the rupee is likely to remain weak due to ongoing geopolitical uncertainties affecting riskier currencies and the strengthening US dollar. Additionally, rising global crude oil prices and increasing US Treasury yields, with expectations of delayed rate cuts in the US, may also put pressure on the rupee.
Experts believe that the Reserve Bank of India’s (RBI) substantial foreign exchange reserves provide confidence to the market that the rupee will not experience significant fluctuations in the near future. Recent data shows that RBI’s forex reserves have increased for the seventh consecutive week, reaching a new record high of $648.6 billion by April 5th.
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