The rupiah crashed to a new all-time low on Monday, marking its third-straight session weakest close, as the dollar advanced, leaving behind a slew of currencies at fear-driven lifetime or multi-year lows. aggressive policy tightening by major central banks would hurt economic growth.
Bloomberg showed the rupiah was last at 81.5675, after hitting a new high of 81.5225 and crashing to 81.6612, its lowest level on record, in Monday’s session.
PTI reported that the Rupee plunged 54 paise to tentatively close at a new all-time low of 81.63 against the US Dollar.
On Thursday and Friday, the national currency had finished at an all-time low, and today it marks all-time lows crossed for the third session in a row.
“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.
The dollar gauge hit another all-time high, leaving the yen just below last week’s point that prompted intervention from Japanese authorities.
The yuan edged closer to the low end of its trading band even as China brought back a tool to make it more expensive to bet against the currency via onshore derivatives. The Korean won traded at its lowest level since 2009.
“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.”
The pound was the hardest hit, the latest ominous omen as market tensions rise.
The fallout from last week’s UK budget statement rattled markets for a second day on Monday, sending the pound to a record high.
The pound fell nearly 5% at one point during the Asian trading day, breaking through 1985 lows and hitting $1.0327. Weaker liquidity in the Asian session compounded the moves and the currency had last climbed to $1.072.
“The market is now treating the UK as if it were an emerging market,” said Rabobank strategist Michael Every in Singapore.
“If this spills over to European trade, you’ll get at the very least a public statement from the BOE threatening (action) and…a strong possibility that they have to hike between meetings and a big one at that.”
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.”