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Rupee suffers fresh blow as crisis deepens, macro headwinds

Author: PTI/Monday, April 30, 2018/Categories: Currency

Rupee suffers fresh blow as crisis deepens, macro headwinds

Forex: The rupee suffered yet another nasty blow as uneasiness roared back once again in mysterious ways driven by a crisis of confidence in the midst of deteriorating macro environment and concerns over capital outflows.

Overall, the forex market sentiment turned into dismay following panic-driven dollar buying from corporates and importers, sending the rupee tumbling down to hit multi-month lows.

Surging global curde prices and consistent widening in the trade deficit alongwith massive exodus of capital outflows from both equity and debt market, largely impacted the forex stability.

It was a bad week for the Indian currency – piercing through all critical support level to hit a fresh 14-month low of 66.91, before a dead-cat bounce.

India appears to be caught in a recurring economic nightmare as the rapid rise in crude prices is putting pressure on sources of macro stability -low inflation, and lower current account and fiscal deficits, a forex dealer said.

The rupee has been the worst performing Asian currency this year after strengthening over 6 percent in 2017, he added.

The bond market also witnessed subdued trade with the benchmark 10-year yield curve rising further to 7.77 per cent from 7.72 per cent last weekend.

Foreign investors and funds pulled out nearly Rs 8,000 crore from the Indian capital markets so far this month due to 'considerable' volatility in global markets.

In the meantime, after scaling life-time high, the country's foreign exchange reserves fell by a whopping USD 2.499 billion to USD 423.582 billion in the week to April 20, the Reserve Bank of India (RBI) said.

On the energy front, crude prices maintained their bullish ascent for the third straight week on hardening worry over Iranian sanctions amid supply concerns due to falling production in Venezuela and Angola.

Brent crude futures, an international benchmark, ended at USD 74.64 a barrel. This month, it briefly touched a high above USD 75-mark, a level last seen in late 2014.

After suffering the worst weekly loss this year, the rupee opened lower at 66.20 from last weekend level of 66.12 at the inter-bank foreign exchange (forex) market driven by intense dollar pressure.

Later it cracked all the way down to hit a fresh 14-month low of 66.91 - just below the psychological 67-mark - the level not seen since February 22, 2017.

The local unit, however managed to pull back some lost ground during the fag-end session of the week to end at 66.66, still showing a loss of 0.54 paise, or 0.82 per cent below where it was a week ago.

Scripting its third-straight weekly plunge, the rupee depreciated sharply by 169 paise against the USD.

Month to date, the rupee has lost a staggering 2.27 per cent.

The RBI, meanwhile, fixed the reference rate for the dollar at 66.7801 and for the euro at 80.7438.

On the global front, fag-end profit taking prevented the U.S. dollar from extending its gains on Friday despite stronger-than-expected first-quarter U.S. GDP growth also supported by a combination of rising treasury yields and growing expectations for a faster pace of rate hikes.

The dollar index, which measures the greenback's value against a basket of six major currencies shot-up to three week high of 91.31 as against 90.08 previously.

Elsewhere, the British pound remained under immense pressure after the first quarter GDP data in the UK fell short of the market expectations alongwith disappointing key macro releases, diminishing chances of a rate hike in nearterm.

The euro tumbled to fresh 3-months low against the greenback after the ECB left policy rates unchanged as expected and left the future of its asset purchasing program unchanged.

The Bank of Japan, however kept the monetary policy unchanged as widely expected in April and abandoned the Fiscal Year 2019 as the time frame for reaching the 2% inflation goal.

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