Indian rupee settled at 79.8350 against the US dollar at the interbank forex market -- muted compared to the previous day's closing of 79.8425 per dollar.
Meanwhile, the offshore Chinese yuan extended its downside - and hit its lowest level in over 2 years. The selling pressure comes after when People's Bank of China released fresh policy measures to stabilise the currency's recent free fall. The yuan has dropped near 6.72 over the past month, shy of its psychological 7 level.
On the other hand, the US dollar index was around 109.70 - taking a breather from its 20-year highs.
Kunal Kurani, associate vice president at Mecklai Financial, said, "The rupee's outlook is weak and it will depreciate ... it needs a major trigger to take it well below the 80 level." He added, "That trigger could be the yuan or the U.S. inflation data," as per a Reuters report.
US is set to announce its August inflation data on Tuesday next week -- which will give some clarity on the US Federal Reserve's hawkish approach to keeping high-interest rates to fight inflation at cost of economic growth. In July 2022, the US consumer price index slowed better-than-expected at 8.5% -- pulling back from a four-decadal high of 9.1% in June this year.
Back at home, Sensex settled at 59,196.99 lower by 48.99 points or 0.08%. Nifty 50 ended at 17,655.60 down by 10.20 points or 0.06%.
On domestic market performance, Vinod Nair, Head of Research at Geojit Financial Services said, "Domestic indices wiped out its early gains to close flat, tracking mixed global cues. While the energy crisis and ECB interest rate decision later in the week pressurized European markets. Chinese policymakers’ renewed efforts to strengthen its economy boded well for the Chinese bourses. In an effort to stabilize declining oil prices, OPEC+ opted to cut back on the output given the faltering global growth outlook"
Rupee September month outlook
Raj Deepak Singh and Rishikesh Lilawat Research Analysts at ICICI Direct in their monthly currency outlook dated on September 5 said, "the rupee is expected to trade flat and outperform during the month. It is likely to trade in the range of 79.00 to 80.40 levels amid a stronger US dollar. Further, weak domestic growth prospects may lead to a pause in FII inflows into the market, putting some pressure on the currency."
Last month, the local currency traded flat despite a rise in domestic equity markets. Further, a drop in crude oil and other commodities prices supported the rupee. However, India's trade deficit widened to $28.68 billion in August. During the month, imports climbed 37% while exports stood flat.
Moreover, the analysts note said, "macroeconomic data added downward pressure to the rupee."
Missing expectations, in Q1FY23, India's real GDP recorded a growth rate of 13.5% --- lower than 20.1% in Q1 of FY22. Meanwhile, the gross value added (GVA) growth came in at 12.7% in Q1FY23 also lower than 18.1% in Q1FY22. The worst hit segments are manufacturing, utility services, and construction.
Further, India’s retail inflation, which is measured by the Consumer Price Index (CPI), relaxed to a five-month low at 6.71% in July, down from 7.01% in June. Inflation stays above RBI's upper limit target for seven consecutive months.
"US$INR consolidated between 78.94 and 80.35. US$INR is expected to continue in the same vein and touch 79.00 on the lower side. Thereafter, it may rebound back towards 80.40," the analysts' note added.
On the greenback, the analysts note said, "the dollar index is expected to appreciate this month amid the Federal Reserve’s hawkish stance and risks of a global recession. Further, concerns over a global economic slowdown may support the dollar.
Moreover, hawkish comments from Federal Reserve members to raise interest rates by 75 basis points, to tame rising inflation may support the dollar. Additionally, a steep rise in US 10 bond yields may continue to support the dollar. However, expectations of weak macroeconomic data from the US may restrict major gains."
In August, the dollar appreciated by 2.85% by touching its multiyear highs against major currencies like the Euro, pound, and yen.
