The rupee came within striking distance of its all-time low of 60.71 to the dollar on Friday as nervousness before the release of US jobs data and strong demand for dollars from oil importers kept the currency under pressure. The rupee touched an intra-day low of 60.59 before settling at 60.24.
The currency?s woes may be far from over, however, with bankers predicting it could touch new lows as the US Federal Reserve readies to withdraw the third round of its quantitative easing stimulus programme. The withdrawal of QE3 could impact the rupee more than other currencies as a worrisome current account deficit and slow economic growth reduces the appeal of Indian assets to foreign investors. Foreign investors have pulled out a net $4 billion of Indian debt since April this year.
JPMorgan predicts that the rupee could fall to 62 by end of 2013 but is reviewing its forecast.
Ahead of the US jobs data, Ashish Parthasarthy, head of treasury at HDFC Bank, said that if the numbers underscore the condition for QE withdrawal, the rupee could weaken to 61 and beyond. ?The current weakness is partly because of the non-farm payroll data that is due. As the negative sentiment continues, that too is putting pressure,? said Parthasarthy.
Later in the day, US non-farm payroll data showed that 195,000 jobs were created in June, far higher than the 175,000 expected. The number of jobs added during May was also revised higher to 195,000 from 175,000.
However, the unemployment rate in June remained high at 7.6%, unchanged from May. The expectation was that the jobless rate could marginally decline to 7.5%.
Already, the rupee has lost a whopping 7.64% in June while currencies such as the Brazilian real, Indonesian rupiah and South African rand have lost only 1%.
The massive fall of the rupee in June was despite the Reserve Bank of India?s dollar sales to arrest the depreciation. Data suggest that the RBI?s forex assets, a loose indicator of the central bank?s intervention, have fallen by nearly $8 billion in June. In the week ended June 28, forex assets had fallen by $3.5 billion. The rupee had touched its all-time low on June 26.
?The government has to give a commitment to bring down CAD like they did for the fiscal deficit. They should state a target for CAD,? said HSBC?s head of global markets Hitendra Dave.
Dave said that only assertive action on the CAD would reverse the sentiment for the rupee.
The rupee?s big fall in just a few weeks in June had triggered several speculative trades involving the non-deliverable forwards (NDF) market and even the local money market.
According to some foreign exchange dealers, some banks had borrowed funds from the overnight call money market to punt on the currency. The call rate has been trading below the repo rate of 7.25% over the last two to three weeks, making it cheaper for banks to borrow overnight money.
?There are some banks that do borrow from the call money and then trade on the exchange rate. But the benefit depends on the swap rates as well,? said a forex dealer of a private bank.
While the arbitrage is negligible, dealers said that it is better than holding idle money.
Interbank rupee liquidity has improved manifold in June with the borrowings from the RBI’s repo tender falling to a 10-month low on Thursday.
Besides this, the arbitrage opportunity from offshore NDF market and the onshore forwards market too induces banks to buy dollars.
?We are now constantly looking overseas for cues. Calls are made to Singapore and Hong Kong desks in the morning to see where the rupee can open,? said a senior treasury official at a foreign bank.
On Friday, the one-month NDF rate was 60.42 at 9 am and rose to to 60.73 by close of Singapore trade. The onshore one-month forward rate was 60.80 and the spot rupee had opened at 60.12.
