Rupee's Relief Short-Lived, Hits New Lifetime Low Of 79.68 Per Dollar

The rupee's relief was only short-lived against a rampant dollar as the currency hit a new record intra-day lifetime low of 79.68 on Wednesday after recovering a touch, marking the third straight session of record weak levels.

While the rupee tracked a generally upbeat mood in Asia trading hours this morning as oil prices fell below $100 and domestic stocks opened on a positive tone, the risks narrative to global financial markets remained ahead of the highly anticipated June US inflation report, which likely accelerated to a 40-year peak.

Bloomberg data showed the rupee was last changing hands at 79.66 against the greenback, after hitting a record low of 79.6825. 

Reuters quoted the rupee at 79.66/67 per dollar compared to its previous close of 79.5975 after the currency touched a life low of 79.6675.

Earlier, the rupee had breathed a sigh of relief on Wednesday, recovering a touch against the rampant dollar a day after crashing to its all-time weak close.

In the previous session, the rupee had collapsed to close at 79.59 against the greenback as the safe-haven stampede into dollar-denominated assets brushed aside almost every other currency, including the euro, which was on the brink of parity with the US currency for the first time since 2002.

On the domestic front, retail inflation for June held above 7 per cent and the Reserve Bank of India's upper end of the target range for the sixth straight month, with details of the data suggesting higher price pressures will remain for the rest of the year, at least.

Now the rupee is only a hop, skip and jump away from a key psychological level of 80 per dollar. 

"We could see 80 levels on the USD/INR very soon. The only force holding it back from falling there is the RBI. But with most other Asian currenices falling, we should get there sooner rather than later," a senior trader at a private bank told Reuters.

But despite the Reserve Bank of India's intervention the currency has breached several psychological levels in recent months during which the rupee has hit a series of record lows repeatedly.

For its part, the RBI has said it would intervene only to control "jerky movements" in the rupee.

The capital exodus from assets denominated by almost any other currency and into the safe-haven greenback was evident as the dollar index, which tracks the currency against a basket of six peers, rose to 108.47, the highest since October 2002.

"Risk-off sentiment is dominating global markets," Yuting Shao, Macro Strategist at State Street Global Markets, told Reuters.

"The dollar is the go-to international reserve currency. So when there is a recessionary risk or a pickup of volatility, the greenback is the currency people rush to because that is the safest," the macro strategist added.

Global financial markets sell-off this year have been greatly influenced by concerns that increasing rates will limit global economic development, while in currency markets, the safe-haven dollar has benefited most.

The real fear now is that once the rupee breaches the 80-to-a-dollar level, the fall after could be even steeper, as a break in a key psychological rate increases bets in favour of a free fall, as we have witnessed since the rupee weakened beyond the 77 per dollar rate.