A secular rise of the dollar against major currencies across the world rubbed off the Indian rupee as well, which registered the biggest single-day fall in three months, on Monday and ended at an eleven-month low of 62.94/$.
Market participants expect the currency to slip beyond 63 on account of a weak trade data released after the market hours on Monday. Data showed that trade deficit widened by 26% to $16.86 billion in November. Despite the big fall, the rupee has stayed on top compared with the emerging market peers, especially its closest competitor — the Indonesian rupiah — as the best-performing currency. The Indonesian currency hit a 16-year low due to a rout in Indonesian sovereign bonds.
At this level, the rupiah is down 4.27% YTD. Among other Asian currencies, the Malaysian ringitt is down 6.3%, South Korean won is weaker by 4.5% and the Chinese renminbi is down 2.25%.
The rupiah hit a 16-year low of 12,698/$ after a sell-off in the sovereign bond market. The government data showed that foreign investors pulled out 10.09 trillion rupiah ($795 million) so far this month through December 11. In contrast, foreign institutional investors continue to pump in dollars in India. So far in December, FIIs have bought $1.79 billion of bonds and $810 million of Indian equities. FIIs have invested $43 billion into bonds and equities so far in 2014.
HSBC expects the rupee to outperform EM peers even in 2015 as there is a strong central government now, oil prices are low and inflation situation is improving that will contribute to the currency’s strength, the bank said.
However, the Reserve Bank of India’s dollar purchases could weigh on the currency. “RBI was the only bank outside of North Asia to buy dollars in November, and it is doing so at increasingly higher levels of USD-INR,” HSBC said in a report. This buying has dragged the rupee 3.84% between September and now
RBI has bought nearly $60 billion from the market between January and October, which has lifted the country’s forex reserves to $314.7 billion, data from the RBI showed. In the spot market, it bought $17.6 billion and in the forwards, the bank has purchased $42 billion. Among other emerging market currencies, the Russian ruble has been the worst performer with a fall of 45% followed by the Argentinian peso which fell by over 23%.