The Indian rupee is expected to fall further on Friday due to a strong dollar and dismal global market mood. Furthermore, continuing FII withdrawals and fears about an impending recession may harm the local unit. "Furthermore, investors are anticipated to remain cautious ahead of key economic data from the United States and speeches from Fed officials."
"The US$INR is likely to trade in a band of 79.60-80.20 in July," according to ICICIDirect. The rupee briefly hit Rs 80 intraday in the previous session in the offshore non-deliverable future (NDF) market. The local currency closed at 79.90, a new record low, down 18 paise from the previous closing of 79.81. The drop was caused by a strong dollar in global markets and capital outflows”.
"The Indian rupee has dropped to another record low as the United States' ongoing red-hot inflation data has bolstered the case for a full percentage point rate rise at the Fed's meeting later this month, given the Fed chair's attitude that inflation must be brought down as soon as feasible." Annual consumer prices in the United States increased by 9.1 percent in June, the most in four decades, above estimates of an 8.8 percent increase."
“The US Fed's aggressive policy approach to temper increasing price pressures is compounding worries of a weaker GDP outlook and contributing to market risk aversion. Furthermore, the dollar index has been steadily rising, while the euro has taken a beating, falling below parity with the dollar for the first time in almost 20 years."
"Europe is dealing with an energy supply crisis as a result of Russian sanctions, which render it more vulnerable to recession risks." This has resulted in a huge moment reflecting the greenback's strength, as markets expect the US Fed to hike rates far faster than its counterparts. It remains to be seen if the single currency can maintain its psychological parity and reclaim some lost territory in the future”.
“All eyes will now be on the ECB meeting next week, which will give more clues concerning the rupee-dollar exchange rate. Given the macroeconomic background, the Indian rupee is targeting 81 to the dollar in the short future."
"The USDINR finished at 79.87 on the spot market, up 24 paise." The high for the day was 79.91. However, following the close, the offshore spot reference has risen beyond 80.00. Following the release of the US CPI, the likelihood of a 100 basis point rate rise has grown dramatically. The Fed is not just hiking, but increasing the rate of rising at each meeting.
At the same time, the yield curve in the United States has inverted. An inverted yield curve suggests a significant slowdown in growth, if not a recession. This combination of an active Fed and a slowing economy is what might hinder flows to emerging markets like India and lead the USDINR to climb further. We must keep a watch on the Chinese currency as much as the Euro. If they fall further, the USDINR might reach 80.50.