Rupee at record low vs US dollar. How much could it depreciate further?

Weak domestic equity markets also weighed on the rupee. Indian shares extended losses to a fifth session as investors worried that aggressive policy tightening by central banks could stifle global economic growth. 

“On the domestic front, RBI has been very actively intervening and curtailing the volatility for the rupee. Global crude oil prices have been rallying thereby putting pressure on inflation and leading to higher trade deficit,” said Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services.

Analysts say rupee plunged amid strength in the dollar index and European Central Bank’s (ECB) signal for raising interest rates from July policy meetings.

“We expect the USDINR (Spot) to trade with a positive bias and is gradually headed towards 78.50 levels. On the downside 77.20 will continue to act as an important support in the short term,” Somaiya added.

The US inflation data will be announced today, and expectations are that the Fed will hike by half a point for at least three more meetings before January.

Dollar is getting support at lower levels ahead of US inflation number that will be released today and FOMC policy statement that is scheduled next week. Expectation is that the Fed could continue to raise rates and maintain its hawkish stance, said Somaiya. 

Traders told Reuters that the rupee could eventually weaken towards 79/dollar levels by end of fiscal year 2022/23 but the fall could be accelerated by firm crude oil prices.

“We expect the dollar index to remain volatile ahead of the U.S. inflation data and could hold its support level of 102.55 on a closing basis in today’s session. On the other hand, the rupee showed weakness against the U.S. dollar amid rising crude oil prices and the Reserve Bank of India’s (RBI) upward revision of the inflation target,” said Rahul Kalantri, VP Commodities, Mehta Equities Ltd.