Mumbai : The rupee on Thursday hit a fresh record low of 70.39 a dollar as India’s merchandise trade deficit hit a new over-five-year high in July, and as the financial crisis in Turkey intensified, dealers said.
However, the Indian unit ended lower after recovering most of its losses made during the day as sales of the dollar, likely on behalf of the Reserve Bank of India (RBI) around the record low levels prompted banks to cut their long positions on the greenback, dealers said.
On Wednesday, Turkey slapped tariffs on import of cars, alcohol, tobacco and other goods from the US in retaliation to US President Donald Trump’s announcement that he had authorised doubling tariffs on import of steel and aluminium from Turkey.
According to data released by the commerce ministry after-market hours on Tuesday, India’s trade deficit increased to $18.02 billion in July. The trade deficit is the highest since May 2013, when it was at $19.06 billion. After moving in a range of 26 paise during the day, the Indian unit ended at 70.1500 a dollar, compared with 69.8950 a dollar at close on Tuesday.
Money markets were shut on Wednesday on account of Independence Day.
Adding to the pressure on the rupee today, the arbitrage opportunity between dollar/rupee rates in the spot and offshore non-deliverable forwards markets prompted banks to buy the greenback in the spot market and sell it at a higher level in the offshore market, dealers said.
Importers, who were unhedged against rupee’s depreciation were also said to have purchased the US unit in significant quantum during the day.
“Since the market conditions are so uncertain, people must not have taken huge positions,” a dealer with a state-owned bank said. “There were not many stops on Thursday. Now, 70.40 is a key level to watch. I was expecting some selling (dollars) in the end because of the long weekend.”
Foreign banks were said to have sold the greenback, likely for foreign portfolio investors who pulled out funds from the domestic equity market, dealers said.
According to provisional data by the National Stock Exchange, FPIs net sold shares worth Rs 825 crore on Thursday.
However, exporters were said to have sold the greenback in significant amounts once the rupee started recovering from its lows owing to fear of missing out on such attractive higher dollar/rupee levels.
