The rupee declined by 35 paise to close at 79.52 against the US currency on Wednesday as higher-than-expected US CPI print resulted in risk-off sentiment among investors. Foreign fund outflows and losses in the domestic equity markets also hit the rupee sentiment, forex traders said.
At the interbank foreign exchange market, the domestic currency opened at 79.58 per dollar. It hovered in a range of 79.38 to 79.60 during the session. The domestic unit finally settled at 79.52, down 35 paise over its previous close of 79.17, ending its four-session gaining streak during which it rose by 78 paise.
"The Indian rupee remained under pressure amid a broad-based gain in the dollar after much-awaited US inflation data came higher than expected," said Dilip Parmar, Research Analyst, HDFC Securities. The dollar bided well after the rate market started pricing a full percentage point hike in the next week's Federal Open Market Committee (FOMC) meeting.
"However, recovery in domestic equities and corporate dollar supply gave support to the rupee after a weak opening," Parmar said, adding that in the near term, spot USDINR is expected to trade in the range of 79.65 to 78.70. According to Sriram Iyer, Senior Research Analyst at Reliance Securities the Indian rupee depreciated against the dollar on Wednesday as hot inflation data spurred bets of an aggressive rate hike by the US Fed.
The local unit managed to claw back from its fall, aided by a recovery in the Indian equity markets. However, Asian and emerging market peers were weak and pressurised the local unit. In the overseas markets, the dollar index gave back some of the gains in afternoon trade, as markets moved their focus to the Fed's two-day September meeting next week.
The Indian rupee depreciated on strong US Dollar and deteriorating global risk sentiments, said Anuj Choudhary - Research Analyst at Sharekhan by BNP Paribas. US Dollar surged in early trade as US CPI rose unexpectedly to 8.3 per cent year-on-year in August, compared to expectations of 8.1 per cent while core CPI increased to 6.3 per cent year-on-year in August, compared to expectations of 6.1 per cent.
"This raised expectations of yet another aggressive rate hike by FOMC in its September meeting. Apart from increased odds of a 75 bps rate hike, there are talks of even a 100 bps rate hike," Choudhary said. Choudhary further noted that "We expect rupee to trade with a negative bias amid risk aversion in global market worries that the US Federal Reserve may be more hawkish than previously expected."
However, India's WPI inflation eased to 12.41 pc in August which may support Rupee at lower levels. Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading 0.35 per cent lower at 109.43.
Brent crude futures, the global oil benchmark, advanced by 0.62 per cent to USD 93.75 per barrel. On the domestic equity market front, the BSE Sensex ended 224.11 points or 0.37 per cent lower at 60,346.97, while the broader NSE Nifty declined 66.30 points or 0.37 per cent to 18,003.75.
Foreign institutional investors turned net sellers in the capital market on Wednesday as they sold shares worth Rs 1,397.51 crore on net basis, preliminary exchange data showed.
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