The United States dollar rose further against the rupee in the inter-bank market, hitting a 2015 high of Rs106.10 during the day’s trading by 12pm on Wednesday.
The dollar rate in the inter-bank market is around Rs105.5, up from the rate of Rs105.25 at the close of trading on Tuesday.
While local sources say depreciation of the rupee is behind the rate hike, the dollar has also appreciated, edging closer to a 2-1/2-month high against a basket of currencies as traders await clues from the US Federal Reserve about the timing of a US interest rate hike.
Currency dealers have described the depreciation of the rupee against the dollar as a deliberate attempt by the government to devalue the local currency.
Money market sources claim the government in talks with the International Monetary Fund in Dubai has been pressured to devalue the rupee.
In addition, exporters have also called for a devaluation of the rupee, they say.
Since the last week of August, when the dollar made sharp gains against the rupee, the inter-bank market was well under control of the central bank and the US currency was not allowed to cross Rs104.50 despite higher demand.
“It appears like August replay. The dollar was set free to locate its value in the inter-bank and within minutes it started rising against the local currency,” Atif Ahmed, a currency dealer in the inter-bank market said earlier.
Ahmed had said the sudden appreciation of the US currency created a rush of buyers to cover their imports.
The latest rise in dollar’s value has stretched rupee’s depreciation to over 3.5 per cent since July 1.
Chances are slim that the dollar would slide back, currency dealers say, citing its steady position since a big single-day surge of 2.3pc on Aug 24.
“The earlier devaluation of the rupee was manoeuvred to support exporters. Falling exports have probably forced the government to appease the exporters’ community a little more,” said a currency expert.
“Most emerging and regional currencies have depreciated substantially. In comparison, the rupee seems to be overvalued by about 5pc,” said Eman Khan from Tresmark.
Faisal Mamsa of Landmark Capital said, “Taking into account the actual depreciation in major currencies, we estimate that the fair value of the rupee based on productivity adjusted REER [real effective exchange rate] has shifted to 106-108 range from 102-104 earlier.”
Real effective exchange rate is the nominal effective exchange rate — a measure of the value of a currency against a weighted average of several foreign currencies — divided by a price deflator or index of costs.
A rate hike at the Fed’s two-day policy meeting which ends later on Wednesday is virtually priced out due to underlying concerns over a slowdown in China and the broader impact on global growth.
But many investors still expect the Fed to indicate that interest rates could rise as early as December. Ahead of the Fed outcome, the dollar index moved in a narrow range this week.
The index, which gauges the greenback against six rival currencies, stood at 96.958 , up about 0.1 per cent from late US trade and not far from a 2 1/2-month peak of 97.201 scaled on Friday.
“Heading in to the FOMC, it’s fair to say that market consensus is that there will be no change, but if there’s any risk, it would be toward a hike, so therefore, intuitively, if you needed to put your cash somewhere, your safest bet would be the dollar today,” said Bart Wakabayashi, head of foreign exchange for State Street Global Markets in Tokyo.
Tuesday’s US economic data did not back the case for a rate hike, with both durable goods orders and consumer sentiment falling short of market expectations.
“Recently, we had a run of soft US data, retail sales, industrial output, trade and now durable goods. None of these really support a rate hike,” said Masatoshi Omata, senior client manager of market trading at Resona Bank.
The euro, which was knocked by European Central Bank chief Mario Draghi’s surprisingly dovish stance last week that opened the door to further monetary easing in December, fell about 0.1pc to $1.1034. But the single currency stayed above Monday’s 2-1/2-month low of $1.0989.
ECB Executive Board member Benoit Coeure said late on Tuesday in Mexico that the bank may need to cut its deposit rate further if inflation rises towards its target more slowly than previous expected.
“The German two-year yields are already trading at around minus 0.3pc. You could say that a 0.1pc point cut in deposit facility rate to minus 0.3pc is already priced in,” said Masafumi Yamamoto, chief currency strategist at Monex Securities.
The yen stood at 120.41 to the dollar, having risen to this week’s high of 120.16 on Tuesday after the below-expected US durable goods orders data.
The Bank of Japan’s policy meeting on Friday also looms large for the yen, with traders split on whether Japan’s central bank will expand its stimulus.
The BOJ is set to cut its price forecasts in a semi-annual report which is also due on Friday, but even in light of this, many BOJ officials would prefer to hold off on expanding the bank’s massive stimulus programme.
The Australian dollar tumbled more than 1pc to a three-week low of $0.7109, after surprisingly soft Australia’s inflation data bolstered expectations of a rate cut by the central bank next week. It last stood at $0.7120, down nearly 1pc.
The British pound steadied after it slipped to a two-week low on Tuesday after data showed Britain’s economy slowed more than expected in the third quarter, fuelling concern that a period of rapid expansion is coming to an end.
Gross domestic product growth slackened to 0.5pc in the three months to September from 0.7pc in the previous quarter. Economists had forecast a drop to 0.6pc.
Sterling fell to $1.5283 on Tuesday, having slipped 1.5pc from one-month high of $1.5510 touched last Thursday. It last stood at $1.5302.