Rupee takes heavy beating, heads towards 75/$ – The Economic Times

Clipped from: https://economictimes.indiatimes.com/markets/forex/rupee-takes-heavy-beating-heads-towards-75/articleshow/86810338.cmsSynopsis

The domestic currency on Wednesday edged closer to 75.00 a US dollar mark, settling at 74.9750 against Tuesday’s close of 74.4450.

NEW DELHI: The rupee plummeted against the US dollar on Wednesday, settling at its lowest closing level in almost six months, as a surge in global crude oil prices augmented concerns about the upside risks to India’s inflation and worsened the outlook for the country’s current account, dealers said.

The domestic currency on Wednesday edged closer to 75.00 a US dollar mark, settling at 74.9750 against Tuesday’s close of 74.4450.

Wednesday’s closing level marks the weakest point for the rupee since April 23, market participants said. So far this week, the Indian unit has weakened around 1.15 per cent against the greenback, primarily on account of hardening of international crude oil prices.

Global crude oil prices have jumped to multi-year highs after the Organisation of the Petroleum Exporting Countries and its allies proceeded with a plan of increasing daily output by just 400,000 barrels till the end of the year. The projected increase is seen falling shortfall of demand at a time when the global economy is gaining momentum after the Covid-19 crisis.

US oil futures climbed to their highest levels in seven years, with West Texas Intermediate crude oil for November delivery adding on $1.31 to close at $78.93 per barrel on the New York Mercantile Exchange on Tuesday.

The global Brent crude benchmark futures contract for December delivery rose $1.30 to end at $82.56 per barrel on the ICE Futures Europe exchange.

For the Indian currency, this has unfavourable implications as the country is a major importer of the commodity. While Consumer Price Index-based inflation has been moderating over the last couple of months, concerns over inflation are likely to jump back to the fore because of how elevated oil prices are.

Investors also bet against the rupee ahead of the release of the US nonfarm payrolls data later this week. The data, which is detailed by the US Labor Department on the first Friday of each month, is one of the most important variables considered by the Federal Reserve when it comes to deciding on interest rates.

Over the last month, the US currency has already gained sharply on a global scale after the Fed said recently that it could start reducing monthly purchases of bonds starting from next month and that interest rate hikes could follow in the months after.

Last week, the greenback climbed to a one-year high against major currencies.

All eyes are now on RBI’s monetary policy statement on Friday, with several traders, both in the currency and bond markets fearing that India’s rate-setting panel could start signalling the path towards a tighter policy, especially keeping in mind the global backdrop.

The benchmark repo rate (currently at 4.00 per cent) is not likely to be raised. However, the reverse repo rate, which at present dictates the overnight cost of funds for money markets, could be raised either in the upcoming policy statement or in December, some investors believe.

These fears pushed up yield on the 10-year benchmark 6.10 per cent, 2031 paper two basis points on Wednesday, with the security closing at 6.28 per cent yield. Bond prices and yields move inversely.

On Tuesday, yield on the 10-year benchmark government security (which is used as the pricing reference for a host of credit products) touched an 18-month high.

“There is an immense risk-off because of what is happening with crude and we are now very close to the major events lined up this week,” a senior currency dealer with a large private bank said.

“Today’s price action in the spot market also indicates that RBI does not want to start expending its reserves at a time when there is a shift in global fundamentals. There is no doubt that the central bank will step in to curb volatility beyond a certain point but maybe this is a sign that it is not that uncomfortable with rupee heading to the 75.00 per dollar level,” the dealer said.

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