The Indian rupee lost more than one per cent of its value on Thursday on panic buying of dollars on news that there were chances that US President Donald Trump could be heading for an impeachment over alleged conversations with Russian government representatives.
The market had built up a huge short position on the rupee, expecting it to fall after a stellar run in the last one week. Rupee rose to a 21-month high of 64.05 a dollar on May 15. Those short positions were covered on Thursday, said currency dealers.
“Most likely a foreign investor, or a group of investors, liquidated their holdings. Some private and foreign banks were on a buying (dollar) spree,” said a senior currency dealer with a foreign bank who did not wish to be named.
Foreign investors, who have heavily invested in Indian assets, are sensitive to any news coming from their home markets. Demands have been raised to impeach US President Donald Trump following a memo by sacked Federal Bureau of Investigation (FBI) director James Comey. Now, the investigation in Russian role in Trump’s election has been handed over to former FBI director Robert Mueller.
According to currency dealers, the market was largely expecting the local currency to fall, but the magnitude was a bit surprising. Rupee lost about 69 paise, or 1.06 per cent, of its value against the dollar on Thursday, its sharpest decline in percentage terms since August 24, 2015, when it had lost 1.22 per cent.
Technical charts show rupee should touch 65.10 level, erasing all gains it had in the last few trading sessions.
The Reserve Bank of India (RBI) probably did not intervene much in the market, but the central bank is expected to come heavily in the market once rupee value nears the technical level as after this, the market enters into a panic mode. The central bank has been buying bonds in the last few sessions to build up its reserves. As on May 5, India’s foreign exchange reserve was at a record $375.72 billion.
All currencies in the region fell against the dollar, but rupee’s fall was the sharpest in the region on Thursday. After rupee, the South Korean won was the biggest loser, losing 0.57 per cent against the dollar.
Dollar index, which measures the greenback’s strength against major global currencies, rose 0.05 per cent.
According to IFA Global, a treasury advisory firm, exporters should book their exposures and also book some of the long-term exposures, while importers should hedge their positions at around the current level.