A sharp decline in crude oil prices and huge amount of foreign exchange reserves have also not helped the rupee in arresting the slide as demand for crude oil has plummeted.
- By Bhavik Patel
Indian rupee last week saw a net gain of +0.10% after posting fresh new all-time low. The reason behind pullback on last Friday i.e. on 17th April was twofold, one was Reserve Bank of India Governor Shaktikanta Das announcing measures to ensure adequate liquidity in the system by easing the financial stress caused by the COVID-19 pandemic and second was the rise in global risk appetite which knocked US dollar among reports that US will roll back restrictions on business and potential treatment for COVID 19.
We have witnessed an amplified flight of foreign funds from the currency market since the start of March on deepening concerns over the extent of economic fallout due to COVID19. This has been highlighted in the above graph where we can see outflows of foreign funds weakening Indian rupee to record low. Indian 10 Year Bond yield logged a weekly gain of 2.17% from 6.488 to 6.347 last week while on a monthly basis it logged a loss of 1.30%. The bond inflows also helped our rupee in staging some minor recovery.
A sharp decline in crude oil prices and huge amount of foreign exchange reserves have also not helped the rupee in arresting the slide as demand for crude oil has plummeted due to travel ban and lockdown so essentially India is importing less crude and less revenue is generated from sale of crude oil.
Indonesian Rupiah, Malaysian Ringgit, Indian Rupee and Thai Baht have been pressured by an exodus of outflows since the COVID-19 began with Indonesian Rupiah seeing most depreciation against the US Dollar. The Rupiah’s recent strength is due to easing investor concerns as bond inflows show signs of recovering. China recently cut its benchmark lending rate and March Industrial production have validated a strong resumption trend in production, which is why Yuan is best performing Asian currencies followed by Singapore Dollar which has reported a surprise 17.6% jump in March exports.
Indian COVID 19 cases curve has yet to flatten while many of the countries in Europe and the US have flattened over the past weekend. The extension of lockdown in India is severely impacting the Indian economy. Hence the rupee is expected to remain under pressure. Unless providing a daily close below a five week old rising trend line (around 76.10-76.20), buyers should be aiming for 77-77.40 levels on the upside.
(The author is Commodity/Currency analyst at Tradebulls Securities. Views expressed are the author’s own.)