Rupee Under 80 Per Dollar Defended By RBI, But Risks Sharp Fall

The rupee was flat early on Monday and trading under 80 per dollar, defended heavily so far by the Reserve Bank of India's intervention even as the greenback started the week on a firm footing ahead of the Federal Reserve meeting.

Bloomberg showed the rupee was last at 79.8587 after opening at 79.8400 against the dollar, compared to its previous close of 79.8537. The rupee traded in the range of 79.8350 to 79.8625, according to the news agency.

PTI reported that the rupee gained five paise to 79.85 against the US dollar in early trade.

But a separate report showed the rupee risks a further decline to 82 per dollar in the near term due to the widening of the trade deficit and expected aggressive rate hike by the US Federal Reserve later this week to tame record high inflation according to economists.

The RBI, though, has made it clear that they would defend the Indian currency from extreme volatility and limit any sharp movements.

While the central bank says the rupee has held up well, they were ready to spend $100 billion in reserves if needed to support the currency in these unprecedented times, when almost every currency listed on the other side of the exchange rate against the dollar has taken a hit.

The dollar was on a firm footing, as traders brace for a sharp US interest rate hike this week and look for safety as data points to a weakening global economy.

The greenback was up slightly against most majors early in the Asia session, trading at $1.0195 on the euro and steadying Friday losses to buy 136.57 Japanese yen.

The US Federal Reserve concludes a two-day meeting on Wednesday and markets are priced for a 75-basis-point (bp) rate hike, with about a 9 per cent chance of a 100 bp hike.

"Market reaction will turn on how hawkish Chair (Jerome) Powell sounds with his determination to reduce inflation in the face of slowing growth," National Australia Bank currency strategist Rodrigo Catril, told Reuters.

Asian stocks lost ground, retreating from over three-week highs as worries about a global economic downturn sapped investors' risk appetite.

Tracking those cues, Indian equity benchmarks on Monday traded lower in opening deals, snapping their six-day winning run.

On the other hand, crude oil prices fell, continuing a recent losing streak, on concerns that an expected increase in interest rates in the US, the world's biggest oil user, may limit fuel demand growth.