The downtrodden Indian rupee extended losses in the early morning deals on Tuesday after opening flat and fell to a new 5-year low against the US dollar at the foreign exchange market following the reversal in crude oil prices.
The Indian rupee extended losses in the early morning deals on Tuesday after opening flat and fell to a new 5-year low against the US dollar on the foreign exchange market after crude oil prices reversed the fall. The rupee shed as much as 17 paise vs US dollar to a new 5-year low of 68.9662 (rupee to dollar rate today), Bloomberg data showed. The domestic currency (rupee) has been reeling under pressure since February this year due to several factors including weaker macro data, LTCG tax on equities, trade wars between US and China and capital outflows.
Rupee to dollar exchange rate at 5-year low
Earlier yesterday, the rupee lost 34 paise to settle at nearly five-year low of 68.80 against US dollar at the interbank foreign exchange market. This is the level last seen on 28 August 2013, a PTI report said. The Reserve Bank of India (RBI) has fixed a reference rate of 68.6227 per unit US dollar on Monday while RBI’s reference rate for rupee vs euro and pound was set at 79.9592 and 90.4310. According to RBI’s statement, rupee to yen exchange rate was fixed at 62 per 100 yens.
5 reasons why Rupee fell to new 5-year low against US dollar
FPI outflow at 10-year high
Over time and again, capital outflows from domestic markets have hurt the position of India’s forex and stocks markets, respectively. According to the data available with stock exchanges, FPIs (Foreign Portfolio Investors) have pulled off about Rs 47,800 crore from India’s capital markets in H1 2018. According to a PTI report, this is by far the biggest sell-off in absolute terms since the first half of 2008. Yesterday only, FPIs sold off Rs 1,205.12 crore worth of equity shares.
Bearish domestic market
Indian equities are bearing the brunt on the back of negative global cues. Earlier yesterday, the benchmark Sensex crashed nearly 472 points from the intraday high. The benchmarks equity indices may not reflect the damage but India’s stock markets are faring very poorly. Nearly 80% of stocks with a current market capitalisation of Rs 1,000 crore are in the red, having lost value between January and June, the Financial Express reported.
Crude oil prices seemed to gathered steam again following the disruption of output Libya. Oil prices climbed on Tuesday after Libya declared force majeure on some of its supplies, although an overall rise in OPEC output and an emerging slowdown in demand held back markets, Reuters said in a report. According to the Bloomberg data, Brent crude oil traded up 0.53% at $77.71 per barrel while US WTI crude traded 0.81% higher at $74.54 a barrel.
Trade war distress
In the CY 2018, the Indian rupee is one of the worst performing Asian currencies vs the US dollar. Market participants have been closely eyeing the United States’ decision due on 6 July in which the Trump administration is likely to impose tariffs on $34 billion worth of Chinese goods. According to an Associated Press report, the US will start imposing a 25% tariff on $34 billion in Chinese imports this Friday following which China is expected to strike back with tariffs on a like amount of US exports. The Trump administration is also identifying an additional $200 billion in Chinese goods for 10% tariffs, which could take effect if Beijing retaliates, the Associated Press report added.
Negative global cues
Since February this year, pessimism started with global sell-off, has not been diminishing in financial markets worldwide. The markets in Asia and Europe have been taking cues from trade decision of biggest economies of the world — US and China. The European Union on Monday slammed the Trump administration for considering higher tariffs on auto imports, saying they could lead to global retaliation against some $300 billion in US goods, Associated Press reported. The US Federal Reserve has hiked its benchmark lending rates by 25 basis points and has signalled for two more hikes this year.
Earlier on Thursday, 28 June 2018, the rupee crashed to an all-time low against US dollar breaching the level of 69 for the first time in the history.