The rupee fell below the 79 mark for the first time in early trade Friday as a plunge in domestic equity eroded risk appetite.
The outlook on emerging currencies was negatively affected by the likelihood of the US central bank continuing with aggressive rates hikes, as well as the likelihood of the central bank continuing with aggressive rate hikes, according to dealers.
The rupee was trading at 79.06 at the previous close, against 78.97 at the previous close. The domestic currency weakened to a low of 79.10 At 10: 15 am IST, the BSE Sensex and the Nifty 50 were trading 1.6 per cent lower than the previous close.
With Foreign Institutional Investors FII showing no signs of letting up on an unprecedented spree of equity sales, currency traders fear further weakness in the rupee in the coming days.
The largest yearly outflow on record has been recorded by FIIs in 2022, which has net sold $28.4 billion worth of Indian stocks. The FII equity sales in June were the largest so far in the year, and represented the biggest outflow since March 2020.
A rise in global oil prices early Friday tilted the scales against the rupee.
A combination of higher US interest rates and upside risks to India's current account deficit, accompanied by elevated oil prices, has caused the rupee to fall 6 per cent against the dollar so far this year.
India sees the biggest FII losing streak, higher oil prices above $110 bl, hawkish Fed, rising trade deficit, and more, all of the risk factors remain the same, CR Forex Advisors said.
We expect the rupee to trade between 78.80 - 79.20 in the short term before it gradually declines further. Dealers are waiting for a response on the levels at which the RBI may intervene to control the rupee's depreciation. Since the Ukraine war broke out in February in order to curtail excessive volatility in the exchange rate, the central bank has used more than $40 billion of its reserves.