Rupee near one-month low on Fed rate hike fears

Emerging market currencies came under pressure today after Fed rate hike fears surface with rupee lost most in two weeks against the dollar.

The rupee ended near one-month low of 64.09 compared with previous close of 63.76. The rupee had opened at 64.04 and during intra-day trades it touched a low of 64.17 per dollar. The rupee had ended at 64.17 per dollar on May 12.

The US jobs data released on Friday boosted the dollar globally on Monday raising concerns that the US Fed may decide to hike interest rates sooner than later due to recovery in the economy.

Data showed that employers added 280,000 jobs in May, the most in five months. The positive data led to emerging market currencies including the rupee weakening against the dollar. 

“I think there is a clear indication that at least till the Federal Open Market Committee (FOMC) meeting which is scheduled for 15-16 of this month, there will be a pressure on the rupee. Rupee may see more depreciation but it will not be a free fall. It will be a gradual depreciation. The rupee may depreciation maximum to 64.60 at least till the FOMC meeting,” said Anindya Banerjee, currency analyst, Kotak Securities.

The US Fed's minutes of the April meeting had revealed that a rate hike in June is ‘unlikely’ due to concerned about weaker economic growth. 

According to Sandeep Gonsalves, forex consultant and dealer, Mecklai & Mecklai, today the Reserve Bank of India (RBI) had intervened in the currency market through dollar sale by state-run banks which helped the rupee to recover slightly.

“The next resistance for the rupee is seen at 64.50 per dollar,” he added. Since the start of this month the rupee has weakened by 26 paise. So far this month there have been foreign outflows to the tune of Rs 2,516 crore from domestic markets.

Meanwhile, RBI has been building foreign exchange reserves as a step towards preparing to face the US Fed's rate hike actions expected later this year. It is expected that when the US Fed starts hiking interest rates, there will be outflows from emerging markets like India.

“We believe that broadly markets find the rate and it will find the appropriate rate for the rupee. Where we intervene is when we find strong flows going in or going out in such a way that the rupee moves significantly and it is temporary and not likely to sustain,” said RBI governor Raghuram Rajan earlier this month in the post-monetary policy interaction with the media.

Data released on Friday showed that the country's foreign exchange reserves rose by $917.5 billion in the week ending May 29 to $352.47 billion.