The rupiah hit a new all-time low against the dollar, marking the third straight session of record highs broken, plunging well past 81.50 to the dollar on Monday as the greenback rose sharply to multi-year highs against most major currencies for fear of a global recession from rising borrowing rates around the world.
Bloomberg last quoted the rupiah at 81.5038 to the dollar, after opening at its lowest level of 81.5225 and hitting a record low of 81.5587, from Friday’s close at 80. .9900.
PTI reported that the national currency fell 38 paise to an all-time low of 81.47 against the US dollar at the start of trading.
“The panic is being created by the dollar index which sees strong buying as a solid hedge against rising interest rates and the inflation cycle. The downtrend in the rupee will continue as long as positive triggers will not be seen at the forefront of inflation,” Jateen Trivedi, Vice President – Research Analyst at LKP Securities, told ANI.
“The next trigger for the Rupee next week is the RBI policy which will provide respite from the falling Rupee. The Rupee range can be seen between 80.50 and 81.55 ahead of the RBI policy” , he added.
Later in the week, the Reserve Bank of India is also expected to raise rates, but by how much has been widely divided among political watchers.
Due to the RBI’s intervention in the market to protect the weakening Rupee and for the country’s trade settlement, India’s foreign exchange reserves have steadily declined over the past few months. Another potential explanation for the rupee’s decline is this exhaustion.
The Indian rupee is likely to remain weaker as investors expect the U.S. Fed to continue raising interest rates aggressively to calm inflation, Sriram Iyer, senior research analyst at Reliance Securities, told Reuters. PTI.
“Attention now turns to the RBI meeting this week, the decision of which is expected on Friday. We expect RBI to raise rates by 50 basis points to cool stubbornly high inflation and prevent the currency from further weakening.” , Mr. Iyer added.
Interest rate hikes in the United States and aggressive Federal Reserve policy forced a dozen other countries to do so last week, underscoring the risks of a global economic slowdown, leading to the onslaught relentless selling in global financial markets and a rallying dollar.
The rally in the dollar also reflects investors stepping up safety bets as Asian markets risk renewed crisis-level tensions as two of the region’s most important currencies slumped under the onslaught of relentless strength of the dollar – the yen and the yuan.
Due to the widening gap between the ultra-hawkish Federal Reserve and dovish policymakers in China and Japan, both the yuan and the yen are falling.
The falling yuan (renminbi) and yen are making the situation worse for everyone and jeopardizing the region’s reputation as a top destination for venture investors. At the same time, other Asian countries rely heavily on their foreign exchange reserves to offset the effects of the dollar.
“The renminbi and the yen are great anchors, and their weakness risks destabilizing currencies for trade and investment in Asia,” Vishnu Varathan, head of economics and strategy at the University, told Bloomberg. Mizuho Bank.
“We are already moving towards stress levels related to the global financial crisis in some respects; the next stage would then be the Asian financial crisis if the losses worsen,” he added.
If the decline in the currencies of the two largest economies in the region causes foreign investors to withdraw money from Asia, a full-blown crisis could develop.
The declines could trigger a vicious cycle of competitive devaluations, lower demand and loss of consumer confidence.
“Currency risk is a bigger threat to Asian countries than interest rates,” Taimur Baig, chief economist at DBS Group in Singapore, told Bloomberg. “At the end of the day, all of Asia is an exporter, and we could see a recovery from 1997 or 1998 without massive collateral damage.”
Not just Asian currencies, the rise in the dollar has pushed the pound to a new all-time low, and analysts are now calling for a peg between the pound and the dollar.
The pound led major currencies lower on Monday, falling to a record low, and the euro fell to a two-decade low at $0.9660 as war risks escalated in Ukraine before stabilizing at $0.9696.
Other currencies also suffered losses, as evidenced by the dollar gauge hitting an all-time high, with the Australian currency hitting $0.6510, its lowest since mid-2020.
“It’s a king US dollar – we’ve seen currencies across Asia come under pressure,” Sian Fenner, senior Asia economist for Oxford Economics, told Bloomberg TV. “That’s on top of inflationary pressures and more central banks raising rates more than we’ve seen historically.”