The rupee on Tuesday touched its fresh all-time low of 79.38 to a dollar in the afternoon trade on Tuesday, on strengthening dollar and amid concerns over a wider current account deficit after the country’s trade deficit in June hit a record high. The rupee was also opened lower at 79.04 per dollar.
India’ domestic currency witnessed volatility on Tuesday with a downward trend. The rupee opened at 79.04 against a dollar, lower as compared with the previous close of 78.95 on Monday. It touched a day’s high of 79.02 during the trade till 3.27 pm and the day’s low of 79.38, which was also its all-time low, according to data at the interbank foreign exchange.
Ratings agency Nomura in its report said analysts expect India’s current account deficit (CAD) widen further to 3.3 percent of gross domestic product (GDP) in FY23, considerably up from 1.2 percent in FY22, due to various factors such as the recent taxation policy on crude oil production. It also said the rupee is likely to fall to 82 against the dollar in the third quarter of 2022.
The rupee has been witnessing the downward trend for the past few months. The local currency had stood at 73.77 to a dollar on January 12, 2022, and since then it has fallen by a significant more than Rs 5 and touched 79.16 on Tuesday. Experts say the local currency has been witnessing the fall in the past few months due to the continuous outflow of dollars due to the exit of foreign portfolio investors (FPIs), costlier crude oil and high dollar index.
Foreign investors continued their massive selling spree for the ninth consecutive month in June, dumping Indian shares worth Rs 50,203 crore during the month. It is the highest net outflow in over two years.
Anindya Banerjee, vice-president (currency derivatives & interest rate derivatives) of Kotak Securities, said, “The dollar-rupee spot closed at a fresh all-time high at 79.38, up 43 paise on spot. A sharp sell-off in EUR-USD due to recessionary fears triggered risk-off trend across global equities. A double whammy of weak equities and strong US Dollar Index caused rupee to depreciate against the US dollar.”
Banerjee added that low forward premium and offshore derivatives quoting a premium over onshore are signs of unwinding of carry trade which is a major headwind for the Rupee. “Over the near term, we expect dollar-rupee to trade with an upward bias, within a range of 79.00-79.80 on spot.”
The dollar index, which gauges the greenback’s strength against a basket of six currencies, rose and touched 106.13 on Tuesday.
India’s trade deficit in June widened to a record $25.63 billion as compared with $9.61 billion in June 2021, according to the government’s preliminary data. The country’s merchandise exports jumped 16.78 per cent year-on-year to $37.94 billion in June, while imports increased 51 per cent year-on-year to $63.58 billion.
In May, the trade deficit during the month was $24.29 billion as against $6.53 billion in May 2021. India’s merchandise exports in May had jumped 20.55 per cent year-on-year to $38.94 billion, while the imports during the month increased 62.83 per cent year-on-year to $63.22 billion.
In the international market, the euro slumped to a two-decade low on Tuesday as the latest surge in European gas prices added to worries about a recession, while there was no stopping the dollar as US Treasury yields staged a rebound, according to reuters.
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