Mumbai: The Indian rupee today retreated sharply to hit a record closing low of 70.16 against the US dollar, plunging by 25 paise despite a huge rally in equities amid easing worries over near-term monetary policy tightening by the US Fed. Indian equity benchmarks Sensex and Nifty today scaled new peaks and logged their best single-day gains in nearly five months, tracking positive global cues as investors took heart from the US Federal Reserve’s “gradual approach” to raising interest rates.
On August 16, the domestic currency had tumbled to a historic intra-day low of 70.40 before closing at a life-time low of 70.15 per dollar. The rupee has been hit by a range of factors including swelling current account deficit, surging global crude prices and lukewarm export growth. Besides, US trade protectionism has also contributed to excess volatility in the forex market.
The benchmark Brent crude surpassed the significant USD 75-mark a barrel once again on re-emergence of a supply shock. Domestic forex market fluctuated wildly during the trade with the rupee climbing to a fresh one-week high of 69.65 in early trade before surrendering the gains. The rupee has been depreciating steadily during the past few months largely reflecting investors’ concerns about India’s widening trade and current account deficits. Country’s current account deficit has been swollen to hit a 62-month high of USD 18 billion in July. The rupee is down over 9 per cent so far this year, making it the worst-performing currency in Asia. Extending its recovery momentum, the rupee today opened higher at 69.75 from weekend close of 69.91 at the inter-bank foreign exchange (forex) market. It gained further ground to hit a session high of 69.65 in early trade due to sustained dollar unwinding and tracking a rally in most Asian peers.
However, the rally did not last, with the rupee succumbing to heavy dollar pressure, taking a sharp reversal in afternoon deals to hit a low of 70.20 before ending at a new closing low of 70.16, showing a loss of 25 paise, or 0.36 per cent. The rupee had posted broad gains in weekend trade to close below 70-mark. The Financial Benchmarks India private limited (FBIL), meanwhile, fixed the reference rate for the dollar at 70.0366 and for the euro at 81.3032.
Meanwhile, India’s foreign exchange reserves fell by USD 33.2 million to USD 400.847 billion in the week to August 17 mainly due to fall in foreign currency assets, according to RBI data. Indian equities, however, closed at record highs taking comfort from a powerful global stocks rally and also supported by blockbuster corporate earnings. The BSE Sensex today shot up over 442 points to close at 38,694.11 and the broader NSE Nifty finished at 11,691.95, surging 134 points. World stock markets also rose to their highest level in more than two weeks following reassuring comments from the US Federal Reserve chief that the US central bank was sticking with its strategy of gradual rate hikes to protect economic growth.
In the meantime, foreign investors and funds pumped in a little over Rs 6,700 crore into the capital markets so far this month. On the energy front, crude prices pulled back modestly on growing concerns the US-China trade dispute will erode global economic growth, although fresh American sanctions against Iran’s oil export limited the fall. International Brent crude oil futures were at USD 75.49 per barrel in early Asian trade.
The 10-year benchmark bond yield also gained 2 bps to settle at 7.89 per cent. Globally, the US dollar is trading lower against its major trading rivals as a much-anticipated speech from Fed Chair Jerome Powell at the Jackson Hole symposium stuck to familiar themes, leaving the status quo rate hike outlook intact. Against a basket of other currencies, the dollar index is down at 94.94. In the cross currency trade, the rupee also fell back against the British pound to end at 90.19 per pound from 89.86 and drifted against the euro to finish at 81.53 as compared to 80.98 earlier. It too dropped against the Japanese yen to end at 63.16 per 100 yens from 62.78.
Elsewhere, mild dollar’s weakness largely helped the British pound and the euro to bounce off from an early slide trade higher against the US dollar. In forward market today, premium for dollar declined owing to mild receiving from exporters. The benchmark six-month forward premium payable in December moved down to 102.50-104.50 paise from 104-106 paise and the far-forward June 2019 contract eased to 252-254 paise from 253-255 paise last Friday.