Rupee Slides Past 65 Against US Dollar For First Time In 3 Months

The rupee weakened past the 65 level against the US dollar for the first time in three months. At day's low, the rupee slipped to 65.10 against the US dollar, before ending at 65.04, as compared to its Wednesday's close of 64.76 against the US dollar. A broad strength in US dollar and outflows from domestic capital markets have weighed on the rupee. The Sensex ended lower today. The dollar index, which measures the greenback against a basket of six other major currencies, was higher today amid expectations of faster US rate hikes. The index was last up 0.4 per cent at a one-week high.


The dollar also benefited from higher bond yields.In a note, forex advisory firm IFA Global said the USD/INR pair has support at 64.80 and further at 64.65 levels.

US treasury yields have risen in the wake of higher government borrowing. The US Treasury Department has issued more debt in anticipation of a higher deficit from last year's major tax overhaul and a budget deal that will increase federal spending over the next two years.

Minutes of the Federal Reserve's last policy meeting, released yesterday, showed the usual concerns that inflation might disappoint, but also an expectation of faster economic growth due to fiscal stimulus. In particular, US Fed members agreed that "the strengthening in the near-term economic outlook increased the likelihood that a gradual upward trajectory of the federal funds rate would be appropriate."

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That led investors to narrow the odds on faster hike. Three rate rises are now almost fully priced in for this year, compared to two as recently as December.

Weak domestic equity markets also weighed on the rupee. Rupee could remain under pressure if outflows from capital markets continue, says forex advisory firm IFA Global. Foreign investors so far this month have pulled out a staggering $1 billion from the Indian stock market. (With Agency Inputs)