Rupee falls as strong US jobs data renew fears of intense rate hikes

Indian shares fell and the rupee dived to a new all-time low against the dollar on Monday after solid US jobs data renewed fears of more aggressive interest rate hikes by the Federal Reserve and made investors shun risky assets.

That pushed the dollar index higher and made the rupee slide past the 82-mark yet again, forcing the Reserve Bank of India to sell dollars. The Indian currency has been under a lot of pressure this year due to factors ranging from the Ukraine war to an exodus of foreign institutional investors from the Indian equity markets.

"The recent jobs data points to a robust U.S. labour market giving further room to the US Fed to aggressively hike interest rates," said Sugandha Sachdeva, VP-Commodity & Currency Research, Religare Broking Ltd.

A report released on Friday showed that US non-farm payrolls added 263,000 jobs in September, thus topping the median estimate of 248,000 jobs, while the unemployment rate fell to 3.5 per cent beating the consensus of 3.7 per cent, explained Anuj Choudhary, a research analyst at Sharekhan.

“Compounding the Fed’s task of reigning in inflation, labour force participation came in at 62.30 per cent as against the forecast of 62.40 per cent, which means that the shrinking job pool will keep an upward pressure on wages,” he said. “The report has raised expectations of the US Federal Reserve sticking to its hawkish stance.”

The US central bank is in the middle of its most aggressive tightening campaign since the 1980s to tackle inflation near four-decade highs. Starting near zero in March, it has raised its benchmark rate to a target range of 3 per cent to 3.25 per cent, including with back-to-back 75 basis-point hikes at their last three meetings, Bloomberg reported. Odds of the Fed hiking rates by another 75 basis points at its November meeting have increased to 92 per cent, some analysts said.

A series of explosions in the Ukrainian capital and renewed concerns about the global economic outlook also spooked investors on Monday.

The NSE Nifty 50 index closed 0.43 per cent lower at 17,241, while the S&P BSE Sensex fell 0.34 per cent to close at 57,991.11. Both the indexes declined over 1.4 per cent earlier on Monday.

The rupee, which has gone from trading under 80 per dollar to above 82 in a span of less than three weeks, pared all its losses to close unchanged at 82.32 per dollar, pulling back from a record low of 82.6825 hit in early morning trades, Reuters said.

Elara Capital economist Garima Kapoor warned on Monday that the rupee could fall to 83.50 per dollar by December and depreciate even further to 84-85 by March due to the expected rate hikes, rising oil prices and widening trade deficit, the news agency said.

(With agency inputs)