Rupee Opens 16 Paise Lower At 94.89 Against U.S. Dollar

The Indian rupee started Wednesday’s session on a weaker note, falling 16 paise to 94.89 against the U.S. dollar from its previous close of 94.73. The decline came as the dollar strengthened to its highest level in more than a year, supported by expectations of further interest rate increases by the U.S. Federal Reserve and renewed demand for safe-haven assets.

The domestic currency opened lower amid broad-based weakness in Asian currencies and a stronger dollar index, which hovered near 101.40.

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Dollar Strength Pressures Rupee

According to Finrex Treasury Advisors, the strength in the greenback has been aided by the inability of the euro, British pound and Japanese yen to sustain gains seen in the previous session, reinforcing the dollar’s recent upward trend.

The advisory firm expects foreign capital inflows to improve gradually, which could provide support to the rupee in the near term. It said exporters may use higher levels to sell dollars, while importers could consider purchases on declines toward the 94.20 mark.

Asian Currencies Trade Lower

Most Asian currencies weakened against the U.S. dollar on June 24 amid cautious sentiment across regional markets.

The Thai baht posted the sharpest decline among major Asian currencies, falling 0.36% from its previous close. China’s renminbi slipped 0.23%, while the Philippine peso and South Korean won lost 0.20% and 0.19%, respectively.

The Malaysian ringgit fell 0.18%, followed by the Indonesian rupiah, which declined 0.09%. Losses were relatively modest in the Singapore dollar and Taiwan dollar, both down 0.05%, while the Japanese yen eased 0.04%.

Fed Rate Outlook Remains In Focus

The U.S. dollar extended its gains on Wednesday, touching a fresh 13-month high against a basket of major currencies. Investors continued to position for the possibility of additional rate hikes by the Federal Reserve later this year while also seeking safety following the recent selloff in global technology stocks.

Higher U.S. interest rates generally strengthen the dollar and can put pressure on emerging market currencies, including the rupee, by making dollar-denominated assets relatively more attractive.

Also, the foreign investment flows as well as the yield levels in the international bonds market have been observed carefully by the currency markets.

The dollar has retained its strength, and hence, the yield levels of the United States along with the monetary policy stance of the Fed will continue to dominate the rupee for the coming periods.