The rupee on Monday closed at a six-month low of 65.12 against the greenback led by dollar demand from importers, a sell-off in the equity markets and a general strengthening of the dollar against most peers. The rupee fell as low as 65.17 during the day and breached the 65 level on a closing basis for the first time since April.“The dollar has been trading strong against most of its peers. Importers were seen hedging their exposures with an expected strengthening of the greenback in coming times,” said a currency dealer. FPIs have sold $965 million of equities on a net basis in September so far while Monday saw an outflow of about $192 million.
The greenback has also been on a strong foot post the FOMC meet, where the US Fed hinted at a rate hike later this year and decided to trim its balance sheet starting October. On Monday, the dollar index was trading at 92.56. The euro had weakened post Angela Merkel’s party winning the German elections with a drop in vote share, while the yen fell against the greenback after Prime Minister Shinzo Abe declared snap elections.
Currency dealers believe the rupee might continue to be weak in the coming days with the greenback on the rise and with corporates having large positions of unhedged exposure.
Till mid-September, the rupee had been on an upmove led by strong fund flows into debt and equity — so much so that the Reserve Bank of India (RBI) shored-up its forex reserves to a lifetime high of over $402 billion. Although the weakness in the rupee started after the FOMC meet, it was
accentuated on reports that the government might be considering a fiscal stimulus package worth Rs 40,000 crore that the market feared might widen the fiscal deficit. The currency has given a year-to-date return of 4.3%. Compared with that, the Chinese renminbi has given a YTD
return of 4.86%, the South African rand has provided a return of 3.6% while the Indonesian rupiah’s return stands at 1.11%. The rouble has provided
a return of 7.35% while the Malaysian ringgit has given a return of 6.7%. Some of the weakness in the rupee might be countered beginning October considering that the central bank has opened up FPI investment limits in corporate bonds by separating the masala bond segment from the overall limit.