Asian currencies fell on Thursday as minutes of the Federal Reserve's last meeting indicated that the U.S. central bank could start scaling back its stimulus as early as September.
The rupee continued to depreciate against the dollar, and closed at a new low of 64.55, down 44 paise from its previous close of 64.11.
Indonesia's rupiah fell to another four-year low on corporate dollar demand and capital outflows.
The Malaysian ringgit slid to its weakest in more than three years after the country posted weaker-than-expected growth and a smaller current account surplus in the second quarter.
Thailand’s baht also touched a three-year low as Bangkok shares and government bond prices slid. The Philippine peso touched a two-month low in catch-up trade on Thursday.
Manila’s financial markets were closed from Monday to Wednesday due to heavy rains and a holiday, when most of its Asian peers fell.
Emerging markets from Thailand to Turkey have come under pressure in recent weeks due to anticipation that the Fed will reduce its quantitative easing.
Its massive stimulus to prop up the U.S. economy generated a wave of cheap money which moved into emerging market currencies, equities and bonds
Since the Fed hinted at a phased withdrawal of its stimulus package, currencies across the region have started their southward journey.
A series of initiatives to drain liquidity by the Reserve Bank of India has not helped the cause of the rupee. Rather, it has only accentuated the rupee fall, much to the chagrin of the policy-makers.
The rupee, during the day, recovered from its historic low of 65.56 to a dollar. “The rupee has declined by nearly 22 per cent against the dollar since May. and is Asia's worst performing currency so far this year. Daily, the rupee is breaching its previous low convincingly. Today (Thursday), for the fifth consecutive day, the rupee has made a new all-time low.
“The dollar is trading strong against major rivals since Wednesday as minutes from the Federal Reserve’s meeting showed almost all officials support a slowing of bond buys later this year, depending on the data. Foreign investors have been pulling money out of India as the economy has slowed down and the cost of borrowing in dollars has risen,” Monjit Gogoi, Regional Director, Alpari Financial Services (India) told The Hindu.
The rupee tried to regain some lost ground towards the last hour of trading after the finance minister stated that the rupee has been undervalued.
As the rupee recovered, the stock indices also moved into positive territory due to short-covering said analysts. The BSE Sensex, ending a four session losing streak, closed with a gain of 407 points at 18312.94 points.
“Volatility was very sharp today. As the rupee recovered, stocks also tried to regain lost ground. Today, the stocks gained because some people who had gone short in the last two three days tried to cover their position by buying stocks,” said Deven Choksey, Managing Director, KR Choksey Share & Securities.
The NSE Nifty, too, bounced back, and closed with a gain of 105.90 point at 5408.45.
Rupee weakness
“A deep oversold Indian equities and an up-tick in the European bourses provided the uplift to Indian stocks, which has clocked gains of 2 per cent on the broad indices. Expectation that government could lift the ban on mining propped the banking shares upward. The weakness in the rupee, which touched a fresh life time low of 65.56 did not have much impact on the equity markets, beyond intra-day volatility. Over the near-term, we see 65.50/60 as a supply point on the dollar/rupee, so as long as it holds, a range of 64.00 to 65.50 could unfold. However, a break above 65.60 could expose 66.50/67.00 levels,” said Anindya Banerjee, Currency Analyst, Kotak Securities. —With inputs from Reuters.
The Indian rupee continued its southward journey for the sixth day in a row breaching the 65 level on Thursday to quote at a historic low of 65.56 at one stage. However, it recovered to end at 64.55, losing 44 paise. Not just the rupee, currencies of other emerging markets such as Brazil, Indonesia and South Africa have also registered significant falls against the dollar. A perusal of the accompanying table will reveal that the South African rand has registered a 18.3 per cent depreciation against the dollar since the start of the year. Brazilian real shed 16.1 per cent, and the Indian rupee 15.3 per cent. In the three months ended August 22, Indian rupee has declined by 13.8 per cent, Indonesian rupiah by 10.3 per cent, and Brazilian real by 16.1 per cent. The Philippine peso has, however, appreciated against the dollar during this period.
