Rupee plunged to a nine-and-a-half-month low of 72.39, led by expectation of incremental foreign fund outflows as equities sold-off post announcement of sluggish GDP growth data for Q1
The rupee on Tuesday fell to a nine-and-a-half month low to close at 72.39 against the dollar led by expectation of incremental foreign fund outflows as equities sold-off post announcement of a sluggish GDP growth data for the June quarter. A strengthening US dollar as well as a weak Chinese yuan also put pressure on the rupee, dealers said.
India’s Q1FY20 GDP growth at 5% was lowest in over six years, according to data released by the government on Friday. With the markets opening after a three-day gap, the Sensex on Tuesday closed 770 points down at 36,562.91. Dealers pointed out that the pessimism in the equity markets had trickled down to the forex market as well.
During intraday trade, the rupee fell by as much as 100 paise to hit 72.407 against the greenback.
MV Srinivasan, vice-president at Mecklai Financial Services, pointed out that any possible bounce-back in the rupee may be limited. “The rupee’s weakness was primarily due to poor Q1 GDP numbers coupled with the strengthening US dollar. Post the release of the GDP numbers late Friday, the market opened for the first time after a three-day break and all the negativity in the equity markets is filtering down to the forex market. The dollar has also jumped against some of the major European currencies. This is reflective in the dollar index movement in recent times. We expect any possible bounce-back in the rupee to be limited to 71.70 levels,” he said.
The dollar index, which tracks the strength of the US dollar against a basket of US trade partners’ currencies, was trading at a 27-month high of 99.37 on Tuesday evening. Over last one week, the dollar index has strengthened by 1.3%. In Asia, barring the Yen, most currencies were trading weak against the greenback.
Coupled with the strengthening dollar, the effect of a weakening yuan is also looming large on the rupee. Bloomberg reported on Tuesday that Chinese and US officials are struggling to agree on the schedule for a planned meeting this month to continue trade talks after Washington rejected Beijing’s request to delay tariffs that took effect over the weekend.
Manish Wadhawan, independent fixed income and forex expert, indicated that a lot would also depend on an early resolution to the US-China trade issues.
“Relentless selling by FPIs in the equity markets is adding pressure on the rupee. The global dollar strength vs majors and the Yuan weakness is also creating headwinds for the currency. If there is no early resolution to US-China trade issues resulting further depreciation of yuan, then rupee might also adjust correspondingly. I will not be surprised to see the rupee cross the 73.50 mark if the yuan falls down to 7.25 levels,” he said. Since
Friday, the yuan has weakened by 0.28% and was trading at 7.177 against the dollar as on Tuesday evening.
Foreign portfolio investors (FPIs) have sold more than $4 billion worth of stocks in the last two months from the Indian equity markets. On Tuesday, FPIs sold $278 million worth of stocks, according to provisional figures on the exchanges.