Rupee Plunges To Over 79.50 As Dollar Climbs On More Fed Rate Hikes

The rupee plunged on Thursday to over 79.50 against the dollar as the greenback strengthened after Federal Reserve policymakers suggested more rate hikes are set to come.

Bloomberg quoted the rupee at 79.5437 against the dollar, a near 40 paise loss from the previous session's close of 79.1613. The news agency showed the rupee traded in the range of 79.1900 to 79.8250 on Thursday.

PTI reported that the Indian currency fell 30 paise to close provisionally at 79.45 against the US dollar. 

That, two days after the Indian currency hit a one-month high and below the 79-per-dollar mark for the first time in over a month.

At the interbank foreign exchange market, the domestic currency opened at 79.21 and finally ended at 79.32, down 17 paise over its previous close.

On Wednesday, the rupee had slumped by 62 paise to close at 79.15, marking its worst single-day fall in the current fiscal year.

The dollar held onto recent gains against other major currencies on Thursday, as more Fed officials reinforced the central bank's determination to slay the highest inflation in decades with aggressive interest rate hikes.

Fed officials have uniformly flagged that they remain determined to deliver rate hikes until there is strong evidence that inflation is headed back down to the Fed's 2 per cent goal.

"We've had hawkish comments and we've also had comments about the extent to which bond markets are expecting rate cuts next year," said Jane Foley, head of currency strategy at Rabobank in London.

"This suggests that rates will stay higher for longer. So, this peak hawkishness could be drawn out and that has supported the dollar this week."

The dollar index, which measures the greenback against six peers, was at 106.34, holding comfortably above a one-month low hit earlier this week. It is up around 0.4 per cent this week, reversing the trend of the previous two weeks.

The dollar's strength has yet to peak, according to a Reuters poll released on Thursday.

Indeed, a Reuters survey found that 70 per cent of foreign exchange analysts polled thought the dollar was yet to peak in this cycle, even after the dollar index hit its highest level in two decades in July.

Reuters Graphic: US Dollar Outlook

A separate Reuters report, quoting a trader, showed the rupee may decline to a new lifetime low versus the US dollar if the Reserve Bank of India on Friday decides to opt for a smaller rate hike.

The RBI is widely expected to raise the repo rate as it continues its battle to control inflation.

Economists, however, differ on the size of the rate hike that the RBI will deliver as the central banks aims to strike the right balance between inflation and growth.

The estimates range from 25-basis points rate hike to 50-basis points.

"We think there is decent chance that rupee will see a record low tomorrow," a trader at a Mumbai-based private sector bank said. "A 50-basis hike will not do much for the rupee, while anything less than that will take the rupee well below 80."

The rupee was trading at 79.51 per US dollar, 0.4 per cent weaker on Thursday, plunging back towards its lows. The local currency hit a record low of 80.0650 on July 19, according to Reuters.