Fed, oil make rupee 2nd worst unit in Asia

Mumbai: The rupee is turning increasingly volatile after the Federal Reserve Wednesday pointed to an imminent lift-off in rates for cooling prices, causing a 28 basis-point surge in a key gauge tracking investor anxiety within hours of articulation of the latest US policy stance.

The one-month Bloomberg volatility index climbed mirroring investor apprehension about capital flight from the emerging markets. The rupee is the second worst performing Asian currency in 2022 after the South Korean won, losing about one percentage point against the dollar, Bloomberg data compiled by ETIG showed.

The Bloomberg one-month volatility index rose to 4.81% Thursday from 4.53% Tuesday. Financial markets were shut Wednesday.

The rupee lost 0.40% to the dollar to close at 75.07 Thursday. During the day's trading, it dropped to 75.31 a dollar but later recouped some of the losses after some large corporates were seen selling dollars.

"With the US Fed strongly hinting its first rate hike in March, the dollar has strengthened against all emerging market currencies, including the rupee," said Bhaskar Panda, executive vice president at HDFC Bank. "Global crude prices are moving up amid political turmoil over Ukraine. This is also weighing on the rupee, with volatility rising in the local exchange rate."

Global crude oil prices rose nearly 5% to nearly $91 a barrel in the past one week. India is one of the largest importers of crude, meeting more than three-fourths of requirements via overseas shipments.

"Large corporates (exporters) were active in selling dollars ahead of the Budget, which is expected to pave the way for overseas investments to India," said Anindya Banerjee, currency analyst at Kotak Securities.

"This has helped arrest further slide in the rupee's value against the dollar."

"The central bank is expected to step in if wild swings threaten stability in the exchange rate ahead of LIC IPO launch," he said.

A large conglomerate with a strong presence in the infrastructure sector is said to have sold dollars taking trading positions ahead of the Union Budget next week. The 12-month forward premium dropped to 4.52% from 4.58% Tuesday.