The Indian rupee fell early Tuesday due to a stronger dollar index and weakening Asian counterparts.By 8am, the South Asian currency was trading at 82.80 against the US dollar (22.56 against the UAE dirham), slipping from Monday’s 82.74 (22.54 against dirham).
The dollar index rebounded in Asia, recovering much of its post-US jobs data losses. Asian currencies declined by 0.2% to 0.6%, with the offshore Chinese yuan reaching 7.2250 to the dollar.
Forex traders noted, “With Asia down, we are back to that level at which interbank will be on the public sector bank watching mode.”
The Reserve Bank of India has consistently intervened through public sector banks to prevent the currency from weakening beyond 82.80-83.
Breaking through 83 could trigger significant stop losses, according to traders.
The dollar gained support from comments by Fed Governor Michelle Bowman, suggesting more interest rate hikes to lower inflation to the Federal Reserve’s 2% target. US inflation data on Thursday is pivotal to the Fed’s outlook. Economists expect the core consumer price index to rise 0.2% month-on-month and 4.8% year-on-year.
ANZ noted, “The Fed is wary of upside risks to elevated inflation given demand for labor remains excessive, and most policy makers think the policy rate will need to be kept restrictive for some time to get inflation back to target. Risks appear skewed that the Fed’s work is not yet done.”