The Indian rupee extended losses from the 19-month low and nosedived to an all-time low against US dollar at the foreign exchange market on Thursday breaking the psychological level of 69 apiece USD for the very first time in history.
The Indian rupee extended losses from the 19-month low and nosedived to an all-time low against US dollar at the foreign exchange market on Thursday breaking the psychological level of 69 apiece USD for the very first time in history. The rupee plunged as much as 49 paise per unit US dollar and touched an all-time low of 69.10 against US dollar. Following the sharp depreciation in the rupee to dollar exchange rate today, the domestic currency (rupee) is now one of the worst performing currencies in Asia.
Going ahead, experts are pointing out that Indian rupee is going to depreciate further and will break a level of 70 per US dollar in the second quarter of the financial year 2018-2019. “We have been and remain bearish on rupee while expecting INR/USD to move beyond that 70 mark in Q2FY19,” Mustafa Nadeem, CEO, Epic Research told FE Online. “The Indian rupee is one of the worst hit in Asian continent in last few months and it is somewhat which we had incoming given the recent change in dynamics of overall world Emerging markets and other factors that affected the Indian economy as well,” Mustafa Nadeem said.
“We expect rupee to breach 70 mark. There is already a shift to defensives, in anticipation of a difficult year ahead,” Anand James, Chief Market Strategist, Geojit Financial Services told FE Online.
The Reserve Bank of India (RBI) has fixed a reference rate of 68.9389 per US dollar on Thursday, 28 June 2018. At the time of writing, the rupee recovered partly against US dollar but was still trading 12 paise lower at 68.75 apiece USD. In the current year 2018, the rupee has lost more than 500 paise or vs US dollar.
4 reasons for further fall in the rupee to dollar exchange rate
Rising crude oil prices
Crude oil prices have been rising again from the recent fall mostly over the concerns of a sharp reduction in crude oil exports from Iran due to US sanctions. “Crude oil is one commodity which Indian equities and economy have enjoyed in last few years on the back of lower prices while it has almost now tripled since its low of around $25. The rising crude is never good for an economy like India which has a higher weight in its basket of imports to crude,” Mustafa Nadeem told FE Online.
“With oil turning higher again, the fall in rupee has accelerated. This should mean that markets are likely to price in a more hawkish stance from RBI,” Anand James told FE Online.
So far in the fiscal year 2018-2019, FIIs (Foreign Institutional Investors) have remain the net sellers and have pulled out about Rs 14,500 crore from the domestic capital markets. FIIs have been persistently selling equities for the most part of this FY, and the consequent pressure on Rupee has been relentless, Anand James said.
“Rising crude has also raised concerns of Inflation which may be countered with a better monsoon but lately the deleveraging and capital outflow from emerging markets have left bulls unfazed,” Mustafa Nadeem said.
Upcoming US Fed rate hike?
Over the years, it has been observed that an interest rate hike by the US Federal Reserve had hurt the safe havens and emerging equity markets. Earlier this month only, US Federal Reserve hiked the interest rates by 25 basis points to 2% and indicated for two more rate hikes in this year. “Rising US interest rates has led to a huge outflow in last few months from the markets,” Mustafa Nadeem said.
Trade war worries
The 3-month long trade war between largest economies of the world — US and China — has left financial markets in a conundrum. From March this year, US and China have imposed tariffs and raised duties on goods imported from US to China and from China to the US.
Earlier in May, trade war seemed to have cooled down but earlier last week, trade war concerns renewed after US administration decided to put additional tariffs of 25% on nearly $50 billion worth of Chinese imports, after which, in a stiff manner, China raised import duties on $34 billion worth of American goods. “Recent Trade war resurgence which is now widespread to the world markets is something further putting pressure,” Mustafa Nadeem added.