Dollar falls 89 paise against dollar on strong US data

The US dollar fell 89 paise, or 1.08 per cent, on Monday, suffering its biggest single day decline in four months on the back of the unexpectedly strong US employment data, which sparked fears that it would hike rates for longer than anticipated.

The domestic currency was at 82.73 per dollar on Monday, versus 81.84 per dollar at the previous close. Monday's fall marked the largest single-day depreciation since September 22, 2022.

As a result of Monday's fall, the has wiped out almost all the gains that have been made against the dollar so far in 2023. On the last trading day of 2022, the currency had closed at 82.74 against the dollar.

US non-farm jobs increased by 517,000, compared to estimates of 185,000, according to data released after Indian trading hours on Friday. Globally, investors fear that the US Fed will have to raise interest rates for longer than expected to cool labour markets and bring down inflation.

Higher US interest rates lead to a stronger dollar as investors prefer higher returns in the world's largest economy. A firm dollar is under pressure on emerging market currencies like the Indian At 3: 30 pm IST on Monday, the US dollar index was at 103.29 versus 101.67 at the same time on Friday.

The dollar index strengthened the way it did, and all Asian currencies lost value today. There is a fear that the US Fed will hike rates for longer. Their 2 per cent inflation target is not quite close to their 2 per cent inflation target. They have to force the economy to slow down or go into a recession by hiking rates, said Bhaskar Panda, HDFC Bank executive vice-president of overseas treasury.

He said that if it went beyond 83, the Reserve Bank of India would intervene, as he expected the rupee to hover in the 82 -- 83 per dollar range in the near term.

While the rupee suffered a bit of a beating on Monday, it did not suffer as much as some other Asian currencies such as the Thai Baht and the South Korean Won, which lost 2.1 per cent and 1.9 per cent against the US dollar.

The rupee is not looking bad at all. Our inflation is within the tolerance zone at least. Our budget has come out to be reasonably good, and our growth is looking resilient. Nitin Agarwal, head of trading at ANZ Bank, said when the dollar was depreciating, the rupee was not appreciating as much because the RBI was buying and recouping reserves.

Agarwal said the market was nervous about the Union Budget, which was presented on February 1. The market view is that India is reasonably placed with that uncertainty gone. It doesn't need to be penalised. That was the statement in today s performance, he said.

The rupee weakened past successive technical levels and these factors aggravated the fall of the domestic unit, traders said. On Monday, the RBI did not intervene heavily through dollar sales, because it wanted to see how the global situation evolves before expending reserves, dealers said.

The RBI intervention was not that aggressive today because the central bank is watching the global currency impact. If the dollar goes to 83, we could see the RBI come in. The rupee is at 82 - 83.20 $1 for the near term, said Anindya Banerjee, vice-president, currency derivatives and interest rate derivatives at Kotak Securities.