Rupee Edges Up Tracking Stocks' Gains, But Dollar Strength To Weigh

The rupee edged up on Wednesday, helped by gains in domestic stocks, but runaway inflation concerns and the dollar's strength are likely to weigh on the currency.

PTI reported the rupee appreciated 19 paise to 76.31 against the US dollar in opening trade on Wednesday, tracking positive trends among Asian and emerging market currencies.

Reuters quoted the rupee at 76.339 per dollar, up from 76.50 on Tuesday.

But the dollar was buoyed by more Federal Reserve policymakers seeking larger and faster interest rate hikes.

Indeed, the dollar index, which measures the greenback's performance against six major currencies, including the yen, edged slightly higher to 101.01, staying above the 101 mark and earlier matching Tuesday's high at 101.03, a level not seen since March 2020.

Against the Japanese yen, the greenback jumped to a fresh two-decade high, and the Fed talk pushed US Treasury yields higher.

The interest rate differential dynamic is set to continue, with the Fed on an aggressive policy path, with quantitative tightening also included, while other major banks play catch up with the US.

"Expectations of quicker rate hike continued to push the dollar and the bond yields higher and will continue to weigh on sentiments," Sriram Iyer, Senior Research Analyst at Reliance Securities, told PTI.

Increasing prospects of more sanctions on Russia have also weighed on global currencies on the other side of the exchange rate against the dollar.

While capital outflows out of India continued on runaway inflation concerns, for the moment, though, the rupee broke a four-day weakening trend and edged higher in early trade.

Still, the respite for the rupee from a run-up in domestic stocks may be short-lived, going by broader global cues.

"Global growth recovery has been stymied by rising commodity prices, hawkish central banks, and geopolitical concerns. While the central bank's dollar supply may limit the upside, a stronger dollar index, foreign money outflows, and higher crude oil prices might drive USD/INR above 76.70. The pair is likely to hold support around the psychological level of 76," said Kshitij Purohit, Lead International Commodities at CapitalVia Global Research.