Wednesday February 20, 2019
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Risk of US hiking rates drowns rupee

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Mumbai: The Indian rupee plunged to a new two-year low of Rs.65.69 to a dollar during intra-day trade on the foreign exchange markets on Thursday following apprehensions of a US interest rate hike and the continuing slide in the Chinese markets.

The rupee, however, later gained strength and closed the day’s trade at Rs.65.56 to a dollar.

Thursday’s intra-day fall mirrors the currency’s movements on Wednesday — when it had hit a fresh two-year low at Rs.65.44 to a US dollar.
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According to analysts, the rupee was impacted by the possibility of US raising its interest rate after a decade of easy financing.

The intent was made clear by the minutes of the last Federal Open Market Committee (FOMC) meet which was held on July 28-29.

Higher interest rates in the US are expected to lead the FPIs (Foreign Portfolio Investors) away from emerging markets such as India.

The other major catalyst for the rupee’s fall has been the devaluation of yuan, intended to boost Chinese exports and arrest the fall in the Chinese markets by pumping up the economy.

“Today, the Chinese markets continued their downward movement despite various measures taken by the government there. This shows that the problem is deep rooted and the impact might be much greater,” Anand James, co-head, technical research, Geojit BNP Paribas, told IANS.

Though unrelated, the stock market crash can prompt China’s central bank to further devalue yuan to propel the domestic economy.

The People’s Bank of China had devalued yuan by two percent on August 11. This was the biggest devaluation in the Chinese currency since 1994.

The currency fell again dropped by two percent on August 12 panicking the world economy.

The attempt is viewed as a tack-tick to corner the international export markets from other emerging trading powers such as India and the Asean (Association of Southeast Asian Nations) grouping.

The move has strengthened the dollar value, which has negatively impacted major world currencies including the Indian rupee.

The yuan has fallen by 4.6 percent till now since August 11.

(IANS)

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Rupee Depreciation Against Dollar Leads to Sharp Rise in Crude Prices

The rupee lost heavily towards the end of the week - over 70 paise in the last three trading session.

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rupees, Dollar, Currency
The currency losing against the dollar and rising crude oil prices was a double whammy for the bond markets. Pixabay

In a choppy week’s trade, the Indian currency weakened against the US dollar to close above the 71 a dollar mark on Friday, owing to a sharp rise in crude oil prices, turmoil in the equity markets and uncertainty around the US-China trade relations.

In what could translate into further trouble for the domestic currency, analysts see an upward move of 6 to 7 per cent in the Brent crude prices in the coming week.

The rupee lost heavily towards the end of the week – over 70 paise in the last three trading session – as traders reacted to the sanction on Venezuela and production cut by OPEC and Saudi Arabia.

Sajal Gupta, Head Fx & Rates Edelweiss, said “technically … crude now looks set for another 6-7 per cent rise” which would mean that the rupee was likely to depreciate further in the coming sessions. “And if Rs 71.80 per dollar is broken, we can head towards Rs 72.50 mark.”

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The rupee lost heavily towards the end of the week – over 70 paise in the last three trading session. Pixabay

Among other factors impacting the currency, Gupta said, with crude and dollar index giving breakout, rupee would remain under pressure. Trade deficit data released on Friday post market was also not very encouraging with monthly deficit touching almost 15 billion dollars.

“Political tensions would also remain heightened with key leaders vowing strong retaliation in wake of the biggest terror attack in the Kashmir valley.”

Explaining the factors which has caused volatility, Anindya Banerjee of Kotak said the currency markets largely depend on the capital flows … and right now the fear of a possible retaliation by the government in response to the Pulwama attack is having an affect.

“The context of the whole event is also important because (Lok Sabha) elections are around the corner,” Banerjee said.

Also, the currency losing against the dollar and rising crude oil prices was a double whammy for the bond markets, he added.

On the global front, discussing the factors affecting the currency, Banerjee said, the Chinese economy was very fragile right now and moreover investors were looking for developments in the US-China trade talks.

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India on Friday revoked the Most Favoured Nation Status (MNS) of Pakistan which has led to decline in equite markets for 6 straight years. Pixabay

However, Gurang Somaiya, currency analyst, Motilal Oswal, felt that the rupee was protected from any major weakness as “Foreign Institutional Investment (FII’s) came around good”, especially in February.

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According to data from the bourses, FII has seen inflows worth Rs 1,096 crore in February.

India on Friday revoked the Most Favoured Nation Status (MNS) of Pakistan and has warned that more stern actions will follow the attack in Pulwama. Additionally, equity markets have declined for 6 straight sessions showing weak investor sentiments. (IANS)