Rupee Today: The domestic currency weakens against the dollarThe Indian rupee plunged on Tuesday, extending losses for the second day in a row after a three-day winning streak was stalled in the previous session as demand for dollars from importers remained firm ahead of key US inflation data later in the day.According to Bloomberg, the rupee was last changing hands at 82.7988 per dollar, compared to its previous close of 82.5388 on Monday.PTI reported that the domestic currency dropped 36 paise to close provisionally at 82.87 against the US dollar.A rise in crude prices in the international market on supply concerns did not help the rupee as the country depends on imports for over 85 per cent of its oil needs.Data on Monday showed domestic retail inflation declined to below the central bank’s tolerance level in November, driving expectations for a slower pace of interest rate rises.That weighed on the domestic currency on the interest-rate differentials with the US, which was previously the rupee’s most appealing trait for traders and is fast deteriorating, pushing the currency into emerging Asia’s worst performer over the past month. On Monday, data showed domestic retail inflation fell to an 11-month low of 5.88 per cent in November, below the upper end of RBI’s target band of 2-6 per cent for the first time since December 2021.Industrial output unexpectedly contracted 4 per cent in October, its weakest performance in 26 months.That put additional pressure on the local currency, in addition to solid demand for the greenback from Indian importers.The “structural and usual” dollar demand is obviously pulling USD/INR higher, but it’s proving difficult to point to what is exactly prompting the recent sizeable underperformance of the rupee, a trader at a Mumbai-based bank told Reuters.The rupee should once again run into small offers around 82.75, a level that has been rejected twice in the last few days, the trader added.The USD/INR forward premiums also decreased on Tuesday as a result of India’s consumer inflation rate slowing considerably more than anticipated in November.“Such lower forward premiums could become self-perpetuating for the rupee, making carry trades less attractive for foreign investors, implying fears of unwinding these trades,” Madhavi Arora, an Economist at Emkay Global Financial Services, told Bloomberg.Shorter tenor rates in the money and FX markets tend to follow each other. However, a higher-than-usual trade and balance-of-payment deficit have exacerbated the cash dollar shortage and the forward premia have deviated from other money markets like onshore rate swaps, said Emkay’s Ms Arora.In the broader currency markets, the dollar held its ground on Tuesday as investors awaited the release of US inflation data and the conclusion of the year’s final Fed meeting on Wednesday.On the assumption that US inflation had peaked, a tiny surprise to the downside a month prior sparked a surge of bond buying and dollar selling.The US price pressures data will put that presumption to the test, and the Fed decision on Wednesday should give policymakers some pretty immediate feedback.”A miss in either direction may get the markets to assume a follow-up reaction from the Fed,” NatWest Markets’ Head of Economics and Strategy, John Briggs told Reuters.Featured Video Of The DayBisleri Looking For Buyers?
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