Rupee ends at fresh 6-month low against dollar on continued foreign fund outflows
Intraday, the rupee touched a high and low of 65.35 and 65.75, respectively. With this, the rupee has now fallen 2.2 percent in the last 6 sessions and the RBI has been forced to intervene at every turn to slow the fall down.
Pranay Lakshminarasimhan
Moneycontrol News
The Indian rupee on Wednesday closed at a fresh 6-month low of 65.71 against the US dollar, 0.4 percent lower than its previous close, as foreign investors continued pulling their money out of Indian securities on worries about ongoing tensions between US and North Korea and about the Indian government overshooting its fiscal deficit target for the year.
Intraday, the rupee touched a high and low of 65.35 and 65.75, respectively. With this, the rupee has now fallen 2.2 percent in the last 6 sessions and the RBI has been forced to intervene at every turn to slow the fall.
Local equity markets fell for the seventh straight session on Wednesday as the underlying risk-off sentiment persisted. The Indian army conducting a military strike along the Indo-Myanmar border on Naga insurgents further contributed to the fall.
“This is clearly a panic market,” said a dealer with a foreign brokerage. “Importers are panic-buying the dollar because no one is able to place a finger on when this pain will end. Custodian banks are heavily selling the rupee in favour of the dollar on behalf of their foreign investor clients looking to exit positions in India.”
The dealer added that the Reserve Bank of India was seen intervening heavily throughout the day. “Whenever the dollar-rupee is crossing 65.70 mark, we are seeing the price bounce back a little. The RBI is standing strong at that level.”
So far this year, the rupee has gained 3.3 percent against the dollar, having fallen in recent sessions after rising by over 6 percent since January. The rise was due to increased foreign investor buying in both local equity and debt markets, which is now reversing.
Foreign portfolio investors have net bought Indian equities and debt worth USD 6.4 billion and USD 20.4 billion, respectively, since January 1.
Market participants said that the factors souring investor sentiment toward the Indian economy are concerns about the Indian government overshooting its fiscal deficit target for the year, ongoing US-North Korea tensions, and the US Federal Reserve’s decision to start trimming down its USD 4.3 trillion balance sheet from next month.
The dollar index traded strong throughout the session and at 17:00 IST was trading at 93.44, 0.5 percent higher than its previous close. Globally, the dollar gained against most emerging market currencies as the above-mentioned factors and the outcome of the recently concluded German elections sparked a risk-off sentiment among investors.
Other Asian currencies like the South Korean won, Singaporean dollar, Malaysian ringgit and Taiwanese dollar were all trading between 0.1 percent and 0.4 percent weaker against the dollar.
“The offshore market is still offering a premium on the dollar-rupee and as long as that holds, the ongoing short-covering trend will continue,” said Anindya Banerjee, Associate Vice President – currency derivatives at Kotak Securities. “This pain in the market has now reached the maximum level. The rupee will likely continue to fall this week but we might be able to see a recovery starting next week.”
Banerjee added that he expected the rupee to settle down between 66.00 and 66.50 at the end of the week.
