Following the positive US jobs report, which solidified predictions of additional significant Federal Reserve rate hikes, the Indian rupee extended its recent decline against the US dollar today. The rupee dropped from 82.33 from the previous session to a record-low 82.66.
Oil prices fell on Monday following a roughly 4% spike on Friday that brought them to five-week highs. The Sensex dropped more than 700 points during the early session on Monday, which caused the domestic markets to decline.
The Indian rupee has been falling and hitting record lows as a result of concerns about FII outflows, rising oil prices, decreased interest from domestic investors, rising US Treasury yields, and demand for the US currency. The country's foreign exchange reserves dropped to $532.66 billion in the week ending September 30, the lowest level since July 2020. Prior to then, it was $537.5 billion.
The Reserve Bank of India's (RBI) actions accomplished little to halt the depreciation of the rupee. Traders asserted that the central bank sold dollars through state-run banks when the local currency crossed the 82-mark for the first time.
Thereupon, the US labour market is slowing down, but an unexpected decline in the unemployment rate has raised hopes that the Federal Reserve would keep up its aggressive tightening; directing more capital to the dollar and deterring investors away from other currencies is the goal of monetary policy.
In a message, IFA Global stated, “The double whammy of higher US rates and higher crude prices is back to haunt the Rupee. While the RBI was able to defend the Rupee successfully through the last round of simultaneous stress on current and capital account by spending its Reserves, this time around things are likely to be different. After having exhausted a significant portion of its Reserves, RBI seems concerned about the burn rate of Reserves and appears to be spending them very judiciously. This has resulted in Rupee adjusting and aligning itself with fundamentals and its peer group currencies.”
In addition to that, IFA Global conveyed, “US jobs report that came out on Friday was solid with headline NFP print coming in line with expectations (263k v/s 275k expected). Unemployment rate dipped to 3.5% from 3.7% in August. Wage growth too was healthy at 0.3% MoM and 5% YoY. This disappointed investors who were looking for some signs of weakness in labor markets that could cause the Fed to pivot from its current stance of aggressive monetary policy tightening. This week's focus will be on the US September CPI print due on Thursday and FOMC minutes due on Wednesday.”
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