Fiscal concerns, strong dollar pull rupee lower
The rupee weakened by four paise to close at 74.23 against the US currency on Tuesday due to fiscal concerns and a stronger dollar in the overseas market.
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Mumbai: The rupee weakened by four paise to close at 74.23 against the US currency on Tuesday due to fiscal concerns and a stronger dollar in the overseas market. Losses in the domestic equity markets also weakened the market sentiment, analysts said. At the interbank foreign exchange (forex) market, the rupee opened at 74.26 per dollar as against its previous close of 74.19. It hovered in the range of 74.20 to 74.28 during the day.
"Rupee depreciated amid weaker domestic equities and stronger dollar index as the Asian regional currencies once again face cases of a new variant of coronavirus and probable strict restrictions at state level," said Dilip Parmar, research analyst, HDFC Securities.
The expectations of higher-than-expected fiscal deficit after the government's announcement of new relief package on Monday weighed on investor sentiment. "Near-term momentum remains sideways with spot USD/INR expected to remain in tight range of 74 to 74.50," Parmar added. Brent crude futures, the global oil benchmark, declined 0.24 per cent to $74.50 per barrel.
Sugandha Sachdeva, vice-president (commodity and currency research), Religare Broking Ltd, said: "Another crucial factor, which will weigh on the rupee, is higher crude oil prices. So far, the rupee has been fairly resilient to the uptick in crude oil prices, but once Brent crosses $80 per barrel, we believe that we may see a sharp selloff in emerging market currencies, specifically the rupee. Higher crude oil prices will complicate woes for the Monetary Policy Committee as they may not be able to ignore domestic inflationary pressures for long, which coupled with domestic fiscal slippage concerns will further weigh on the domestic currency. For now, the 72.20 mark on the rupee is sacrosanct and we may not see the rupee breaching this level any time soon. On the other hand, we are not expecting a sharp depreciation on the rupee below 75.50 levels, as the RBI's forex buffer is quite strong. For the July-September quarter, the rupee should trade in a broad 73-75.50 band."
