What led the Indian rupee to a low of 79/$ on Wednesday 29th June?

On 29th June 2022, the rupee for the first time ever, slipped beyond 79/$. RBI did briefly defend the rupee around the 78/$ levels, but the trend has been firmly against the rupee. There has been a solid bull rally in the dollar index (DXY), which is at a 20-year high of 104.50. Dollar strength was triggered by Fed hawkishness as well as the pressure on the rupee from consistent FPI outflows. Oil companies are also lapping up dollars.

These factors led to the Indian rupee weakening from 78.20/$ to 79/$ in just two days. What stood out was the RBI did not support the rupee which now looks all set to swerve towards the 80/$ mark. What has really kept the pressure on the rupee is the FPI outflows of over $30 billion since October 2021. June 2022 alone saw $6.5 billion of FPI outflows. This forced a lot of oil marketing companies to rush for dollar buying to hedge their risk and the rush for dollars by the banks in itself is adding to the stress on INR.