The rupee breached the 80-to-a-dollar mark to hit a fresh record low while bond yields climbed 6 basis points, tracking a fall in global equities on the back of the Federal Reserve’s hawkish rhetoric at Jackson Hole.
At 9.30am, the home currency was trading at 80.03 against the US dollar, down 0.25 percent from its previous close. The rupee opened at 80.07 and touched a record low of 80.13 a dollar.
The 10-year bond yields increased 6.27 percent from its previous close of 6.21 percent. Bond yield and prices move in opposite directions.
Among Asian currencies, South Korean won declined 1.3 percent, Thai Baht lost 0.8 percent, Japanese yen 0.64 percent, China Renminbi 0.6 percent, Taiwan dollar 0.6 percent, Malaysian ringgit 0.5 percent, Indonesian rupia 0.43 percent, Singapore dollar 0.34 percent.
US Fed Chair Powell reiterated the central bank’s unconditional commitment to tackle inflation, besides highlighting risks posed by elevated and extended periods of high price growth. In reaction, rate-sensitive short-end and 10-year yields adjusted up, whilst stocks sold off sharply.
“Powell meets our expectations at Jackson Hole. Chair Powell’s speech at the 2022 Jackson Hole Economic Symposium broadly met our expectations and reinforces our view the Fed will remain hawkish, even as the economy enters recession later this year,” said Nomura Research.
“We expect a recession to start in Q4 2022, but increasingly entrenched inflation will likely result in continued Fed tightening through February before cuts in Q3 2023,” it added.
Analysts said the revamped ADP employment report and August NFP will be in focus with potential implications for the size of the Fed’s next rate hike in September.
Powell in his address last week at the Fed’s Jackson Hole symposium flagged the likely need for restrictive monetary policy for some time to curb high inflation and cautioned against loosening monetary conditions prematurely.
“USDINR is on a strong wicket, with such a positive USD backdrop. A strong US Dollar Index, high US bond yields with a deeply inverted yield curve and weak equity markets all make it challenging for FPI and carry trade flows in EMs. However, the speed of the up move will be closely regulated by RBI. RBI has twin objectives of not letting the Rupee become a weak outlier and also, they do not want the USDINR to become too volatile” said Anindya Banerjee, VP, Currency Derivatives & Interest Rate Derivatives at Kotak Securities.
“This means they may continue to sell USD as the spot and forwards moves to a fresh all-time high. However, this may not alter the trajectory of the pair and the path of least resistance would remain upward,” Banerjee said.
He expects the rupee to be in a range of 79.70 and 80.50 over the next one-two weeks.