USD/INR: Rupee Opens Weak, Falls Over 22 Paise Against Dollar in Early Trade

The Indian rupee broke its recent recovery trend in the early trading session Wednesday, depreciating by over 22 paise against the U.S. dollar as the greenback found safe-haven demand ahead of Fed’s June meeting minutes amid crude oil prices at a three-year high.

The dollar to rupee conversion today rose to 74.77 against the U.S. currency, up from Tuesday’s close of 74.5425. The rupee has lost over 170 paise in June – posting the biggest monthly drop since March 2020, the early days of the pandemic, and weakened more than 44 paise so far in this month.

“The rupee again depreciated against the USD and slipped almost 24 paise towards the end. The rupee closed at 74.54 levels while a reversal was seen post a sharp sell-off in equities,” noted analysts at ICICI Direct.

“The dollar index on Tuesday saw support ahead of Wednesday’s release of the minutes from the June 15-16 FOMC meeting, which could be hawkish for Fed policy and supportive of the dollar. FOMC members at that meeting began discussions of QE tapering.”

The dollar index, a measurement of the dollar’s value relative to six foreign currencies, was trading nearly flat at 92.54 – pulling back from three-month highs as rate hikes bets ebbed.

Investors will watch minutes from the Fed’s latest meeting – due on Wednesday – after the Fed brought forward its policy tightening timeline and surprised markets last month.

But the world’s dominant reserve currency, the USD, is expected to rise over the coming year, largely driven by the Fed’s dot plot released last week, which suggested an expectation of two rate hikes in 2023. A strengthening dollar and growing risk that the Federal Reserve would tighten its monetary policy earlier than expected would push the USD to INR pair higher.

The benchmark equity indices BSE Sensex was trading 26.23 points or 0.05% higher at 52,888.09, while the broader NSE Nifty traded nearly flat at 15,818.85.

It is worth noting that sustained foreign fund outflows, higher oil prices and firm U.S. dollar will continue to weigh on the rupee.

However, foreign institutional investors were net sellers in the capital market on Tuesday as they offloaded shares worth Rs 543.3 crore, as per exchange data.

Global oil benchmark Brent futures traded 0.03% lower at $74.52 per barrel at the time of writing. On Tuesday, oil prices spiked to a three-year high of $77.84 per barrel as OPEC+ failed to reach an agreement.

Higher oil prices would push up the inflation expectations and widen India’s trade deficit, which could hurt the Indian rupee.