Mumbai: The rupee on Wednesday weakened to a 19-month low against the US dollar over concerns that higher crude oil prices will worsen India’s current account deficit and accelerate inflation. Rupee fell to a low of 68.67, the lowest since 30 November 2016. At 3.20 pm, the rupee was trading at 68.58 against the dollar, as against its previous close of 67.99. The rupee had opened at 68.42 a dollar. Year to date, the rupee is weaker by nearly 7%.
The rupee is now just 0.3% away from its all-time closing low of 68.825, which it hit on 28 August 2013. In intraday, the rupee hit a record low of 68.8625 on 30 November 2016.
“The recent gap-up in rupee momentum is largely driven by the broader dollar strength—as the latter’s rate differentials continue to widen with its other G3 peers. Undeniably, adding to the bearish momentum not only in the INR but also AXJ pack, is the US-China trade dispute which investors fret could spillover and jeopardise global growth momentum”, said Radhika Rao, economist at DBS Bank.
“The resultant risk-off mood has seemingly set-off a vicious loop—currency weakness is a thorn on the side of foreign portfolio investors, with outflows here triggering further rupee weakness. Today equities have also seemed to have joined the debt markets on their way south. Given the risks also building up on the domestic macro end, we retain our inhouse call for the rupee to weaken towards 69.50 by year-end”, Rao added.
Crude oil prices jumped on Tuesday after the US pressed its allies to end all imports of Iranian oil by a November deadline and said it didn’t want to offer any extensions.
Moreover, the continued selling by foreign investors in local equity and debt market also dampened sentiment. So far this year, foreign investors have sold a combined of $7 billion in equity and debt markets.
Traders were also cautious due to the escalating global trade tensions between US and other major economies, progress of monsoon and movement of crude oil prices.
Bond yields gained for the fourth session. The 10-year bond yield stood at 7.866%, from its Tuesday’s close of 7.829%. Bond yields and prices move in opposite directions.
“There are no major triggers this week and hence participants are likely to stay on the sidelines as witnessed today too. However, expectations of the next OMO purchase announcement are dominant, especially with systemic liquidity trending well into deficit mode”, said Edelweiss Financial in a note to its investors.
Traders said ₹ 69 per dollar was a critical level and beyond that the rupee could depreciate faster unless the Reserve Bank of India (RBI) intervened aggressively. The RBI was suspected to have sold dollars mildly in the forex market earlier in the day, Reuters quoted traders as saying.
“Apart from oil, the rupee is also correcting after appreciating at a fast pace last year. But what remains to be seen is the RBI’s tolerance band in terms of volatility,” said a dealer at a foreign bank.