Still smarting from the shock of the Reserve Bank holding rates, the rupee continued its downfall, and tanked by a whopping 90 paise to all-time closing low of 58.77 on massive dollar buying by banks and importers as forex markets became jittery ahead of the US Fed meetingTuesday which will decided on the fate of its five-years of stimulus programme.
Capital outflows also affected the market sentiment with FIIs offloading shares worth over Rs 750 crore in two days, ami` d talks of continuing sell-off in debt as well. Since May-end, FIIs have sold around $5 billion debts. "Forex markets were nervous ahead of the Fed meeting. More than demand and supply, the sentiment was very poor. The decision of whether the Fed will taper bond-buying will only be known on Wednesday…It’s not right time for the RBI to intervene as the trend is bearish," said Mohan Shenoi, group treasury president & global markets at Kotak Mahindra Bank.
The rupee resumed lower at 58.25 per dollar as against the last closing level of 57.87 per dollar at the forex market. It dropped further to a low of 58.81 on concern that US Federal Reserve will indicate a reduction in asset purchases that boosted inflows to emerging markets. It finally ended at 58.77 per dollar, showing a loss of 90 paise or 1.56 per cent. On June 11, the rupee hit its all-time low of 58.98/99 intra-day but closed at 58.39. Local factors like poor trade data also affected rupee today. "Depreciation is mainly due to concerns of high CAD. Also, widening trade deficit data for May had also impacted the local currency today," said Corporation Bank general manager P Paramasivam, who looks after treasury operations.
In global market, dollar gained against major rivals on prospects of a cut in the country's interest rate. In London, dollar rose in early trade and was trading above recent two-month lows against the yen, with further gains dependent on the US Fed guidance monetary stimulus to prop up the economy. Participants were cautious as global markets keenly awaited decisions from the US Fed, whose two-day policy meeting starts today. Investors are looking for signals if Fed will taper USD 85 billion in monthly bond purchases after the US economy showed some recovery in recent weeks. Some experts are forecasting rupee may cross 59-levels. "The rupee depreciated by big margin today. It might have become a victim of a carry trade unwind, as a sharp appreciation in the yen and depreciation in rupee since mid-May, has become a pain trade for FIIs who have invested in Indian debt paper…we could see a range of 57.50 to 59.30 over the near-term," said Anindya Banerjee, currency analyst at Kotak Securities.
The rupee traded near its lowest level due to strengthening of dollar against major global currencies and the widening trade deficit. "Major Asian currencies were seen trading weaker against dollar ahead of the Fed meet. Market will be keenly listening to Bernanke's speech as his comments on 'QE tapering or continuing' will be very significant," said Abhishek Goenka of India Forex Advisors. The slight gains in the US dollar ahead of the Fed meet have also contributed to the losses in the rupee, he added.
Meanwhile, crude oil prices rose in the Asian trade fuelled by growing concern over the Syrian conflict and political unrest in Turkey. The Indian stock market benchmark Sensex dropped by 102.59 points, or 0.53 per cent, to end at 19,223.28. Meanwhile, premium for forward dollar improved further on sustained paying pressure from banks and corporates. Benchmark six-month forward dollar premium payable in November edged up to 151-1/2-153-1/2 paise from Monday’s close of 151-152 paise and far-forward contracts maturing in May also finished higher at 307-309 paise from 301-1/2- 303-1/2 paise.
