Rupee Reverses Sharp Gains, Renews Its Fall Toward 80 Per Dollar

The rupee reversed sharp gains from earlier in the session on Monday, and started its fall toward 80 per dollar on worries of persistent forex outflows, despite the greenback stuttering at below multi-year highs, crude oil prices below $100 a barrel and a broader risk rally in global markets.

Bloomberg quoted that the rupee was last changing hands at 79.8875 against the greenback after opening strong at 79.7713 and hitting a high of 79.7238 for the day.

PTI reported the Indian currency had gained 6 paise to 79.76 against the dollar in early trade, with initial deals showing a high of 79.72 and a low of 79.81 against the American currency.

The rupee on Friday had recovered from the near-80 levels to close higher by 17 paise at 79.82 per dollar.

While worries of capital outflows weighed on the Indian currency, traders expect the Reserve Bank of India to intervene aggressively to keep the rupee from breaching its next key psychological level of 80 to a dollar for as long as possible.

The latest stock exchange data showed foreign institutional investors (FIIs) remained net sellers in the Indian capital markets on Friday, offloading shares worth Rs 1,649.36 crore. 

"The RBI may protect the level of 80 for some more time before it can allow a break. The trade deficit is very high for the rupee to sustain while importers/ debt companies will keep buying dollars to pay off their payables," Anil Kumar Bhansali, Head of Treasury at Finrex Treasury Advisors, told PTI.

He further said, "flows have not resumed, and FPIs are still sellers in the stock market, though the intensity has come down. India may be the highest growth country amongst the big-sized markets, and with good rainfall, demand could be good enough. The RBI may hike interest rates to attract flows but let growth continue."

The Indian currency rebounded earlier today because the dollar began the week nudging down from multi-year highs, although fears about Europe's gas supply put a cap on greenback selling.

Reuters reported that traders were holding their breath ahead of Thursday when gas is supposed to resume flowing through the Nord Stream pipe from Russia to Germany after a shutdown for scheduled maintenance. 

"If that doesn't happen, that would be a very bad thing for a lot of currencies," Joseph Capurso, head of international economics at Commonwealth Bank of Australia, with the euro likely to be the biggest loser and the dollar a beneficiary, told Reuters.

Asian stocks, including domestic benchmark indices, rallied as a fall in crude prices suggested somewhat subdued inflation expectations and, in turn, rate hikes. 

Oil markets have been in a see-saw mode, and on Monday, crude prices fell below $100 per barrel, bringing relief to consumers and policymakers worldwide.

Crude prices fell $1 in early trading in Asia to below $100 a barrel, cutting into gains from Friday, as attention turned back to rising COVID-19 cases in China and the prospect of lockdowns again reducing fuel demand in the world's top oil importing nation.

But analysts warned that the dollar's reign is here to stay.

"There has been a fixation with how the dollar is poised to weaken," analysts at HSBC said in an outlook report, which raised the bank's dollar forecasts broadly, according to Reuters.

"There has been too much attention paid to the dollar's frailties but not enough to the increasing ones elsewhere, causing the dollar to be overvalued. Global growth is slowing, and the downside risks are intensifying, which is USD positive...this dollar bull run is not over yet," added HSBC's analysts.