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EM currencies fight back, rupee continues to sink

The Indian rupee crashed to a fresh low of 72 against the US dollar, even as other Asian currencies withstood the rising tension of trade wars.

Published: 07th September 2018 03:04 AM  |   Last Updated: 07th September 2018 03:04 AM   |  A+A-

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Image used for representational purpose only. (File Photo | Reuters)

By Express News Service

MUMBAI: The Indian rupee crashed to a fresh low of 72 against the US dollar, even as other Asian currencies withstood the rising tension of trade wars. Thursday’s fall was the seventh consecutive slide for rupee and also its longest losing streak since May 2016. The domestic currency fell over 11 per cent till date in 2018, even as Indonesian rupiah, Philippines peso, Japanese yen, Singapore dollar, Taiwan dollar and South Korean won all traded higher.

Rupee opened at 71.65, touched a new low of 72.08 a dollar, and closed at 71.94, down 0.26 per cent from its previous close of 71.76, raising concerns over the widening import bill. As it is, oil imports surged 76 per cent in July over last year, ballooning the trade deficit to $18 billion — the highest in five years. Yet, officials seem to be taking comfort in our forex reserves, perched at a comfortable $400 billion, and sufficient to cover imports for about nine months.

“Fundamentally, rupee should continue to depreciate against the US dollar in the long run given the interest rate and inflation differential in the two countries. The sudden volatility in rupee’s performance can be attributed to external factors such as global trade tensions, strengthening dollar and overall weakness in emerging market currencies,” said Puskhar Mukewar, co-founder & co-CEO, Drip Capital.

The continuing fall in rupee also fuelled speculation that RBI may open a forex swap window to meet the daily dollar requirements of oil marketing firms. “The RBI using this route will immediately remove about $600 million a day of demand from the foreign exchange market,” said Kotak Mahindra Bank in a note. RBI, however, neither sent any such feelers nor intervened in the market selling dollars.

Meanwhile, Sensex fell intraday by 29.65 points, reacting to the news of rupee breaching 72 to a dollar mark, but recovered quickly to end the day with a gain of 224.50 points to close at 38,242.81. Short-term worries on the currency front as well the crude oil weigh on markets, traders said. Oil marketing companies, as well upstream companies such as Oil and Natural Gas Corporation and Oil India Ltd ended the day on a positive note. Outcome on the negotiations to win a waiver on crude imports from Iran will be keenly watched as the inter-ministerial meeting concludes in New Delhi on Friday. Any disruption in supplies and spike in crude prices would add pressure on the currency and also on equities.

Notable among the sectors that performed well was pharma, and Aurobindo Pharma’s close to a $1 billion acquisition of Sandoz Inc., USA’s dermatology and oral solids businesses was a positive development.

Bond rates ease
The 10-year bond yield, which continued to endure the steady rupee depreciation, stood at 8.064 per cent, from its previous close of 8.049 per cent. Foreign Portfolio Investors sold $261.20 million and $6 billion in equity and debt markets respectively.



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