The rupee closed at a record low for the third consecutive day due to outflows in Indian equities and risk aversion due to signs of a growth slowdown in the US
The rupee closed at 83.96 versus the US dollar on Tuesday, a new record low, against the previous close of 93.9525 versus the US dollar, LSEG data showed.
Foreign portfolio investors sold Rs. 3,531.24 crores on Tuesday and Rs. 10,073.75 crores on Monday from Indian equities, data from Bombay Stock Exchange showed.
The fall in the local currency is because of risk aversion, traders said. The July 2024 jobs report in the US shows signs that the labour market is cooling down. The U.S. labour market added 114,000 jobs in July, much lower than expected and the 179,000 rise in June.
The RBI may be permitting weakness in the rupee because of overvaluation of the currency. According to RBI data, the rupee’s real effective exchange rate (REER) was overvalued by 6% against 40 other currencies.
“The REER was at 106.54 in June, showing that the currency was overvalued by 6.5%, RBI would like to bring REER to 102 levels”, said Anil Bhansali, Head Of Treasury at Finrex Treasury Advisors. A reading over 100 implies overvaluation.
The real effective exchange rate is the weighted average of a country’s currency in relation to an index or basket of other major currencies.
“I am expecting the rupee to touch 84.30/$1 levels by the end of this month, and if the market is perceiving a recession in the US, the Indian rupee wont gain much”, said Bhansali.
The Reserve Bank Of India’s intervention seems to have capped the volatility of the rupee, where the central bank may have sold dollars as the currency touched 83.95 levels, traders said.
