Rupee Ended Weak On Dollar's Resurgence After Fed Officials' Rate Hike Views

The rupee weakened a touch on Friday on dollar's resurgence after hawkish comments from Federal Reserve officials pushed against the idea this week's softening US inflation data could prompt the central bank to slow down policy tightening.

Investors will focus on retail inflation data to be released at 5.30 pm and whether there will be any follow-through dollar demand from importers ahead of a long weekend, with markets closed on Monday for Independence Day celebrations.

Bloomberg showed the rupee was last changing hands at around 79.65 per dollar, after opening at 79.6662, compared to the previous close of 79.6362.

PTI reported that the Indian currency fell 4 paise to close provisionally at 79.66 against the US dollar.

At the interbank foreign exchange market, the local currency opened at 79.67 and saw an intra-day high of 79.63 and a low of 79.72 against the American currency, and finally ended at 79.66, down 4 paise over its previous close, according to PTI.

On Thursday, the rupee depreciated by 37 paise to close at 79.62 against the greenback.

Traders said the rupee traded in a narrow range as investors awaited key domestic macroeconomic data points like index of industrial production (IIP) and consumer price index (CPI) for further cues.

Globally, since the US inflation data came in lower than anticipated, markets read it as a sign that the Fed could be less aggressive in raising interest rates, which boosted riskier assets like equities and weakened the dollar.

However, Fed policymakers were clear that they will keep tightening monetary policy, which in turn pushed the dollar higher.

The dollar index was up 0.2 per cent at 105.28, after four days of losses that have put it on track for a weekly decline of 1.2 per cent.

Traders were pricing in nearly a 40 per cent chance of a 75 basis points Fed rate hike in September and over a 60 per cent chance of 50 bps.

"We think it will take far more evidence of slowing core inflation to temper Fed tightening," said Paul Mackel, global head of FX research at HSBC, in a note to clients.

"Inflation is also a global problem not just a US one, and so global growth and inflation dynamics will also drive the USD," he said.

What also likely weighed on the rupee was that oil prices were set to rise for the week as recession fears eased even as an uncertain demand outlook capped gains.

The international benchmark, Brent crude, was trading near $100 a barrel, set to rise over 3 per cent this week after last week's 14 per cent tumble, its biggest weekly decline since April 2020, amid fears that rising inflation and interest rate hikes will hit economic growth and demand for fuel.

India imports over 80 per cent of its oil needs and result in a widening trade and current account deficit, hurting the rupee.

Demand from importers for dollars also weigh on the domestic currency.