The partially convertible rupee opened at 74.3450 to the dollar on Monday, 0.15% lower than 74.2350 at the previous close. So far in the day, the national currency has moved in a band of 74.3125 to 74.3625 against the greenback.
The US currency strengthened around the world after US Federal Reserve Governor Christopher Waller urged the US central bank to step up the reduction in quantitative easing amid tighter inflation in the largest economy in the world.
Consumer inflation in the United States hit a 31-year high in October, rising to 6.2% year-on-year.
The data release has intensified speculation that the Federal Reserve will tighten monetary policy sooner than expected, leading to higher yields on US government bonds and a stronger dollar.
Higher interest rates in the world’s largest economy would likely reduce the appeal of emerging market currencies such as the Indian rupee.
The dollar index, which measures the greenback against six major currency rivals, broke the psychologically significant level of 96 on Monday and was last at 96.11. The index was at 95.78 by 4:15 p.m. IST on Thursday. The national currency market was closed on Friday for Guru Nanak Jayanti.
âThe noise coming from the Federal Reserve clearly suggests that they intend to tackle bullish inflation by the horns. Everyone was prepared for the normalization of US policy, but if it happens sooner than expected, the repercussions will certainly be felt in emerging markets, âsaid a currency trader at a large private bank under the guise of ‘anonymity.
âWe’re in a much better position on reserves, but if there is a real global change in fundamentals, the RBI may not want to spend too much ammunition; he just wants to smooth out volatility. The rupee’s bias is therefore that of depreciation, âhe added.
As signals from the Fed weighed on local market sentiment, a sharp drop in global crude oil prices provided some support for the domestic currency, traders said.
Crude oil prices fell to their lowest level in seven weeks on Friday amid fears of weak demand after COVID-19 cases spiked in Europe.
Crude oil for December delivery on the New York Mercantile Exchange plunged 3.7% to close at $ 76.10 per barrel. Brent crude prices fell 2.9% to close at $ 78.89 a barrel.
Falling crude oil prices bode well for India’s current account and inflation as the country is the world’s third-largest consumer and importer of this product.
Lower oil prices also boosted sentiment in the sovereign bond market, with the 6.10% 2031 10-year benchmark paper yield being two basis points lower than the previous close at 6.33%. The prices and yields of bonds move in the opposite direction.