Rupee breaks 5-day losing streak, ends 0.3% stronger against dollar

Pranay Lakshminarasimhan

Moneycontrol News

The Indian rupee on Thursday broke a 5-day losing streak and closed at 65.51 to the dollar, 0.3 percent higher than its previous close, as the domestic equity market recovered after falling for seven straight sessions. Intraday, the rupee touched a high and low of 65.49 and 65.89, respectively.

Dealers said that heavy intervention from the Reserve Bank of India (RBI) also contributed to stemming the fall of the rupee. The RBI started intervening heavily towards the end of Wednesday’s session and did so again when the rupee opened weak on Thursday.

The rupee has been in a free fall over the last one week, falling 2.2 percent in 6 sessions, ever since the government said that it would be overshooting its fiscal deficit target for the year. The fall was also due to a global risk-off sentiment sparking a withdrawal of funds by foreign investors from most emerging markets.

Ongoing tensions between US and North Korea over the latter’s controversial nuclear weapons programme have also added to investors’ apprehensions.

“Both banks and importers have been panic-buying dollars over the last few sessions,” said a dealer with a domestic brokerage. “Even today, in the first hour, we saw many of them in the market for dollars and you must have noticed that the rupee fell to 65.90 at that time. But it looks like the RBI put its foot down at that level and said enough is enough.”

So far this year, the rupee has gained 3.4 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 6.1 billion and USD 20.3 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 for most of the session but erased its gains and at 17:00 IST was trading at 93.24, 0.1 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, Indonesian rupiah, Chinese renminbi and Taiwanese dollar were all trading between 0.2 percent and 0.7 percent weaker against the dollar.

“In this kind of short-covering powered panic market, liquidity is usually the first casualty,” said Anindya Banerjee, Associate Vice President – currency derivatives at Kotak Securities. “The RBI coming to intervene heavily is good news because it will help in abating the panic that has set in. If people see an entity like the RBI pouring in billions of dollars in the market, their confidence will slowly come back.”

Banerjee added that he expected the rupee to trade between 65.20 and 66.00 for the next couple of weeks as the dollar is seen remaining strong considering the Fed starts its ‘great unwinding’ from next month.