Why rupee is extending its weak run against US dollar

The Indian rupee has been having a bad run of form of late with no end in sight to the Ukraine war and interest rate hikes by global central banks, including both the US Federal Reserve and the Reserve Bank of India. 

The rupee has hit a new low against the US dollar after the solid US jobs report cemented bets of more large Federal Reserve rate hikes. The rupee fell to a record low of 82.66 on Monday, down from 82.33 from the previous session.

What has the rupee’s trajectory been like over the past few months?

The rupee has been repeatedly posting record lows in recent sessions on concerns over oil prices, rising Treasury yields, FII outflows and offshore demand for the US currency. The Reserve Bank of India's interventions have not been able to arrest the slide in the rupee, unlike in prior occasions.

How have India’s forex reserves been doing?

In the week through Sept. 30, India's forex reserves declined to $532.66 billion, the lowest since July 2020. Reserves were at $537.5 billion the week prior. The reserves have declined by more than $100 billion in 2022 as the RBI sold dollars to defend the rupee.

How have global oil prices been fairing?

Oil prices eased today, after having extended their rally with a near 4% jump on Friday to five-week highs. An OPEC+ decision to make its largest supply cut since 2020, despite concern about a possible recession and rising interest rates, have boosted crude prices.

And what about Indian inflation?

Data on India's retail inflation, which is expected on Wednesday, likely accelerated to a five month high of 7.30% in September due to surging food prices, a Reuters poll found. A Reuters poll of 47 economists suggested inflation - as measured by the Consumer Price Index - rose to an annual 7.30% in September from 7.00% the previous month. 

What have analysts said about the rupee and the macroeconomic situation?

“The double whammy of higher US rates and higher crude prices is back to haunt the rupee," IFA Global said in a note.  

IFA said that, while the RBI was able to defend the Rupee successfully through the last round of simultaneous stress on current and capital account by spending it's Reserves, this time around things are likely to be different. 

“After having exhausted a significant portion of its Reserves, RBI seems concerned about the burn rate of Reserves and appears to be spending them very judiciously. This has resulted in Rupee adjusting and aligning itself with fundamentals and it's peer group currencies," IFA said.

IFA also said that the US jobs report that came out on Friday was solid with headline non-farm payroll print coming in line with expectations (263k v/s 275k expected). Unemployment rate dipped to 3.5% from 3.7% in August. Wage growth too was healthy at 0.3% month on month and 5% year on year, it noted. 

“This disappointed investors who were looking for some signs of weakness in labor markets that could cause the Fed to pivot from its current stance of aggressive monetary policy tightening. This week focus will be on the US September CPI print due on Thursday and FOMC minutes due on Wednesday," IFA said.