Rupee drops by 21 p to 1-week low on dollar demand

The rupee plunged by 21 paise to settle at a week’s low of 73.28 against the U.S. dollar on Monday, tracking weak domestic equities and a rebound in the American currency.

At the interbank forex market, the domestic unit opened at 73.21 against the greenback and swung between a low of 73.30 and a high of 73.18 during the session.

It finally settled down by 21 paise at 73.28, the lowest closing level since January 11. On Friday, the rupee had settled at 73.07 against the American currency.

Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, rose 0.15% to 90.91.

“Indian rupee depreciated amid strong dollar and risk aversion in the domestic markets,” said Saif Mukadam, Research Analyst, Sharekhan by BNP Paribas.

Demand for the U.S. dollar increased on worries over rising coronavirus cases across the globe and decline in stock markets. Market sentiments were hurt on weaker-than-expected economic data from the U.S., he said.

“Traders remained cautious ahead of Janet Yellen’s appearance before the Senate Finance Committee and President-elect Joe Biden’s inauguration,” he said, adding that the sharp fall was prevented on steady FII inflows.

On the domestic equity market front, the BSE Sensex ended 470.40 points or 0.96% lower at 48,564.27, while the broader NSE Nifty declined 152.40 points or 1.06% to 14,281.30.

Foreign institutional investors were net buyers in the capital market as they purchased shares worth ₹971.06 crore on a net basis on Friday, according to provisional exchange data.

Brent crude futures, the global oil benchmark, declined 0.24% to $54.97 per barrel.

“Rupee consolidated in a narrow range in the first half of the session but fell in the latter half following weakness in domestic equities. The currency fell as the dollar rose against its major crosses,” said Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services.

According to Sriram Iyer, Senior Research Analyst at Reliance Securities, the rupee depreciated as the greenback remained firm amid risk aversion.

“Dollar demand from importers also weighed on the local unit,” he said adding that weak Asian currencies and lower Indian equity market weighed on sentiments.

The USD-INR Spot pair could trade in a range of 73.15-73.45 levels in the coming session, Iyer said.

Devarsh Vakil, Deputy Head of Retail Research said, “Dollar is currently enjoying a corrective bounce and that may remain the trend for this week as ‘risk on’ assets like emerging equity markets and currencies and commodities are correcting.” “Forex market is focusing on Janet Yellen’s confirmation hearing for Treasury Secretary in the Senate on Tuesday, just a day before Joe Biden’s inauguration on Wednesday,” Mr. Vakil said.

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