Declining euro precipitated the fall of rupee in the last couple of hours of trading

The rupee touched an all-time low of 60.76 a dollar on Wednesday, breaching its previous historic low of 59.98 (intra-day). It closed at 60.71/72 as compared to its Tuesday’s close of 59.66/67 in the foreign exchange market.

“It was a sharp reaction and it was not expected,” said N. S. Venkatesh, Chief General Manager, Treasury, IDBI Bank.

Stop-loss

The moment the rupee touched 60, there were lots of stop-losses which got triggered and short positions were covered resulting in rupee depreciating further.

The dollar has strengthened against all major currencies and the dollar index also strengthened.

“The weakness is expected to continue for a couple of days and the rupee is expected to pull back after that on expectation of dollar inflows for the HUL share buyback as also remittances from NRIs,” said Mr. Venkatesh. According to him, it would strengthen to 59.50 levels in the current juncture.

The European Central Bank also was not supportive of euro and the euro also started falling against the dollar, which precipitated the fall of rupee against the dollar in the last couple of hours of trading.

Speculative movements

“Total speculative movements were happening after the 58 levels,” said K. N. Dey, a Mumbai-based foreign exchange analyst. At present, non-delivery forward markets are guiding the rupee rate.

“Over 11 per cent fall in two months is extremely alarming, which, in turn, pushes the prices of commodities, especially oil and coal,” Mr. Dey added. The rupee fell 1.8 per cent on Wednesday, the worst performer of the day among the emerging Asian currencies.

In the last ten days, the rupee mostly opened with a gap of 30-40 paise, clearly indicating the impact of non-delivery forward markets on rupee rate.

“Indian rupee plunged to a new record low against the U.S. currency in spot market on the back of strong dollar demand from oil importers, towards month-end needs,” said Sugandha Sachdeva, Assistant Vice-President & Incharge-Metals, Energy & Currency Research, Religare Securities Limited. The rupee has seen a precipitous fall of more than 7 per cent in the last one month, as recovery seen in U.S. economy and an expected scaling down of monetary stimulus by the U.S. Fed by year-end is resulting in FIIs (foreign institutional investors) withdrawing money from emerging markets and investing in U.S. assets.

Further, adding to the rupee’s woes is the renewed strength witnessed in dollar index, now trading at its three-week high and 10- year bond yield that has surged considerably by around one per cent on Wednesday. “As rupee has breached the invincible 60-mark, it is likely to depreciate further in continuation of its strong bearish momentum, though a short bounce-back cannot be ruled out,” said Ms. Sachdeva, adding, “the level of 62 looks imminent in the coming days.”

Sensex drops 77 points

As chances of a rate cut was eroding and the fall of rupee had accelerated, FII outflows also intensified, resulting in stock indices closing at lower levels.

The benchmark Bombay Stock Exchange 30-share sensitive index, Sensex, fell by 77.03 points to 18552.12.

The broader National Stock Exchange’s 50-share Nifty fell 20.40 points to close at 5588.70.

However, technology, FMCG, power and information technology (IT) stocks ended in the positive territory, with IT gaining the most with 1.69 per cent on the back of falling rupee which is expected to increase the profit of IT companies, which are export-oriented.

The biggest loser was automobile companies as BSE’s auto stocks dipped by 1.79 per cent followed by metals 1.31 per cent, consumer durables and healthcare 1.12 per cent each and banks 1.03 per cent.

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