Rupee Falls 33 Paise To 81.76 Against A Resurgent Dollar

The rupee weakened on Thursday, pulling back from a one-month high hit in the previous session on increased demand for the dollar from importers and companies and a broad recovery in the safe-haven greenback as market sentiment soured ahead of key US inflation data.

After opening at 81.6362 per dollar, the currency fell further to 81.7575 compared to Wednesday's close of 81.4337, according to Bloomberg. PTI reported that the domestic currency fell 33 paise to close provisionally at 81.80 against the US dollar.  

The rupee traded in the 81.5412 to 81.9325 range against the dollar, which recovered overnight and held onto those gains.

On Wednesday, the currency increased for the third day in a row, rising 0.6% as inflows improved and risk sentiment rose.

The decline on Thursday was attributed by traders to dollar demand from oil corporations and international banks at the daily Reserve Bank of India fixing rate.

"Corporate buying, including oil companies, some fixing related buying at lower levels accompanied by an upside in the dollar index to 110.50, and a fall in Asian currencies took the rupee to over 81.90," said Anil Kumar Bhansali, Head of Treasury at Finrex Treasury Advisors.

"Yesterday's move to 81.23 seemed excessive and therefore a correction looked imminent. We expect a range of 81.50 to 83.00 in the coming days," he added.

The safe-haven dollar index, a measure of the greenback's performance against a basket of major currencies, regained its footing overnight, on caution ahead of the key US inflation data that could drive the Federal Reserve's future interest rate hikes path.

"Today's CPI data will not be the final say on that decision, but it can set the tone regarding the Fed's comfort level," analysts at ING said.

"Any upside surprise could do some damage to the recent benign risk environment and end the recent correction in the dollar."

Neel Kashkari, President of the Minneapolis Fed, said on Wednesday that it is "absolutely premature" to consider a change in direction from the Fed's current strategy of tightening, even if he seemed to support the idea of varying the magnitude of future rate hikes.

"I think the biggest risk going into today's US CPI release is for the markets to be over-reading it. There is potential for a softer print, no doubt, but the Fed has already communicated a downshift in its rate hike trajectory without exiting its hawkish bent," Charu Chanana, Market Strategist at Saxo Markets told Reuters.

However, a drop in oil prices is anticipated to provide some support for the currency, with Brent crude futures down 6 per cent so far this week due to worries over a slowdown in Chinese demand.

Still, a crisis in the crypto world also hurt risk sentiment and supported the dollar, analysts said.

Indeed, a breakdown in crypto exchange Binance's bailout bid for its ailing smaller rival FTX weighed on risk assets.