Rupee Rises Sharply To 80.75 As Dollar Falls After Lower US Inflation Reading

The rupee rose sharply on Friday, reversing losses in the previous session as the dollar took a hit after lower-than-expected US inflation data raised market hopes that the Federal Reserve will start to scale back on its ultra-aggressive rate hikes.

Bloomberg showed the rupee was last changing hands at 80.75 per dollar after opening at 80.6888, compared to its previous close of 81.8112.

The domestic currency traded in the 80.6788 to 80.7525 range in early trade, below the 81 per dollar mark. The last time the currency traded in the 80-per-dollar-handle was seven weeks ago.

If the rupee keeps up this rally, it will notch its biggest intraday percentage gain since December 2018.

"At such times, when there is a tendency to get carried away, it would be good to identify support levels (for USD/INR)," a Mumbai-based trader told Reuters. "We see two major ones at 80.40 and at 80.00."

PTI reported that the rupee rose 64 paise to 80.76 against the US dollar in early trade. 

"The dollar has broken all its support against the rupee after rising to 81.91 yesterday. The nearest support is now at 80.50 and a psychological support at 80. The range for the day is expected to be 80.25 to 81.00," said Anil Kumar Bhansali, Head of Treasury at Finrex Treasury Advisors.

Overnight, the US dollar index, which measures the greenback against a basket of major currencies, fell more than 2 per cent to 108.100, the highest in over a decade.

Data showed the US consumer price index rose 7.7 per cent year over year in October, which was less than expected, and the smallest increase since January.

Reflecting that, shorter-dated Treasury yields collapsed, Asian currencies rallied, with the Korean won climbed almost 2 per cent. 

Following the data release, the dollar fell overnight and had its worst day versus the Japanese yen since 2016 with a 3.7 per cent loss. Since then, it has somewhat recovered those losses.

The British pound rose more than 3 per cent, which was its strongest daily gain since 2017. The Australian dollar also experienced a leap of close to 3 per cent, which was its biggest since 2011.

"The overnight moves in the dollar were pretty sharp...I do think the results in the U.S. CPI for October will support the case for a downshift in the FOMC rate hike in December," Carol Kong, a Currency Strategist at Commonwealth Bank of Australia, told Reuters.