Rupee plunges to all-time low against US dollar

The Indian rupee hit a fresh record low of 77.58 against the US dollar in early trade on Thursday after the U.S. inflation data triggered a selloff in global equities.

The local currency opened at 77.56 against the US dollar and hit an all-time low of 77.58 versus the greenback, tracking losses in its Asian peers. The rupee has depreciated by almost 4% against the dollar in the current calendar year so far.

Consumer prices in the U.S. jumped 8.3% year-on-year in April, raising fears of further rate hikes by the Federal Reserve. While the U.S. inflation dipped a bit last month, it still remains at elevated levels. The U.S. consumer price index rose 8.5% year-over-year in March, the highest rate since 1981.

“The U.S. CPI rose 0.3% last month versus the 1.2% month-to-month surge in the CPI in March, while on an annual basis, CPI climbed 8.3%, higher than the 8.1% estimate but below 8.5% the prior month. Meanwhile, St. Louis Fed President James Bullard said the U.S. inflation was broader and more persistent and that he would like to see the policy rate at 3.5% at year-end," says Sriram Iyer, senior research analyst at Reliance Securities.

“The Fed rate is currently at 0.75%-1% and the U.S. central bank is scheduled to meet five more times this year. If the Fed rate were to get near to 3.5%, it would mean 50-bps increases at each of the meetings," Iyer adds.

The fall in the local currency comes as Indian equity benchmarks – the Sensex and the Nifty 50 – dropped 1.8% on Thursday.

“Rupee is expected to remain under pressure today amid risk aversion in the global markets and strong dollar. Further, rupee may slip on persistent FII outflows and a surge in crude oil prices," ICICI Securities points out in a note. “Market participants will remain vigilant ahead of CPI data from country which is likely to show that inflation remained above RBI comfort zone for 4th consecutive month. USD-INR (May) is expected to trade in a range of 77.25-77.75.”

What the fall in rupee means for Indian investors investing abroad

“Your investments in the Indian stock market are in rupees. However, when you invest overseas (in the U.S. stock markets) it is in dollars. You first convert your money into USD to invest in the U.S. stock markets and then back to INR when you redeem it. When the rupee depreciates against the dollar, it effectively means an additional return on your U.S. investments. With the rupee hitting a record low against the USD, Indian investors in US markets will stand to benefit,” says Viram Shah, co-founder and CEO, Vested Finance, an U.S.-headquartered online platform enabling Indian investors to invest in the U.S. stock market.

The rupee has depreciated by approximately 50% compared to the US dollar in the past 10 years, he adds.