The rupee on Wednesday weakened to 72.09 against the dollar, even as the dollex strengthened and long rupee-dollar positions were unwound.
The rupee on Wednesday weakened to 72.09 against the dollar, even as the dollex strengthened and long rupee-dollar positions were unwound. The Indian currency fell 62 paise over Monday’s close.
The Chinese yuan too lost value against the greenback, falling to a one-week low after US President Donald Trump said he would raise tariffs on Chinese goods if the two countries fail to reach a trade deal.
The dollex strengthened to a one-month high of 98.37.
Bloomberg data shows Wednesday’s fall in the rupee was the biggest single-day decline since September 16, taking it to an over-two month low. The rupee has now lost 109 paise in the last three sessions. That’s despite foreign portfolio inflows into the bond and stock markets having been positive at close to $2.2 billion in November so far and having crossed $3 billion in the last 10 sessions.
Currency market experts aren’t ruling out a further weakness given the rupee ended Wednesday’s session very near the intra-day low of 72.10.
India’s merchandise trade deficit between April and September was $83.7 billion while the overall trade deficit was $45 billion. Economists opined that while the trade deficit could rise in the second half of the year, the current account deficit for 2019-20 should not cross 1.5-1.6% of GDP, implying a balance of payments surplus.
Wednesday’s sharp depreciation appears to have been triggered by heavy unwinding of long rupee-dollar positions against the backdrop of weakening macro-economic conditions. Ananth Narayan, professor (finance), SPJIMR, pointed out the large quantum of dollars mopped up by the RBI in recent times indicates a build-up of speculative long rupee/short dollar trades in the market.
“Given the recent domestic and global risk-off news, it appears that some of these positions are now being exited, causing a near-term underperformance of the rupee,” Narayan explained.
He expects RBI to supply dollars if there is continued and volatile weakening of the rupee adding that core foreign exchange flows have improved for the rupee in the recent past, with the current account deficit reducing and FPI/ FDI flows looking better.
A currency dealer confirmed speculators have been creating long positions in the rupee and short positions in the dollar and Wednesday’s weakness in the rupee was partly the result of positions being unwound. “With worsening macros, speculators are covering their long positions,” he said.
Last week, Moody’s lowered its India outlook to negative citing fiscal concerns. The government’s revenue collections are falling short of targets causing concern the fiscal deficit could widen beyond the stated target. Meanwhile, growth remains sluggish as seen in the contraction in factory output for September of 4.3% year-on-year.