Rupee closes shy of 80/$ as RBI shields currency, exporters sell dollars

The rupee settled just below 80 per US dollar on Wednesday as market interventions by the Reserve Bank of India (RBI) and dollar sales by banks on behalf of exporters reined in depreciation in the domestic currency, said dealers. The rupee settled at 79.99 per dollar on Wednesday — a fresh closing low for the Indian unit versus the greenback.

On Tuesday, the rupee had breached the 80-per-dollar-mark for the first time, weakening to a low of 80.06 to a dollar, before recovering ground to settle at 79.95 per dollar.

The rupee has given up 7.1 per cent versus the dollar so far in 2022 amid record outflows of overseas investment and a rising current account deficit (CAD) for India.

Foreign portfolio investors have made a beeline for the exit, selling $29 billion of Indian equities so far in the year due to a blend of high domestic inflation, upward pressure on CAD, and higher interest rates in the US.

With the central bank’s hand seen preventing the rupee from weakening past the 80-per-dollar-mark on Wednesday, the domestic currency was confined to a narrow range versus the dollar, moving in a band of just 7 paise.

“The RBI was there at 79.98-79.99 per dollar, as were exporters,” said a dealer with a public sector bank, adding, “With the RBI showing signs of protecting the 80-per-dollar-level, exporters are locking in dollar sales in the hope that the rupee may not depreciate further from the current levels.”

The RBI aggressively sold dollars from its foreign exchange reserves to shield the rupee from excessive volatility ever since Russia invaded Ukraine on February 24. The RBI’s headline reserves have dropped around $51 billion since February 25.

A decline in the US dollar index, a fall in crude oil prices, and strength in domestic equities also lent heft to the rupee on Wednesday.

“Although the trend is bullish (for the dollar), near-term profit booking cannot be ruled out amid broad-based weakness in the greenback. Technically, spot USD/INR is having resistance at 80.3 and support at 79.7,” wrote HDFC Securities, in a note.