US Federal Reserve’s monetary policy meeting on Wednesday weighed so heavy on the domestic currency on Tuesday that it plunged by a whopping 90 paise to all-time closing low of 58.77 on massive dollar buying by banks and importers.
Capital outflows also affected the market sentiment with FIIs offloading shares worth over Rs750 crore in two days, amid talks of continuing sell-off in debt as well. Since May-end, FIIs have sold around $5 billion debt securities.
“The market participants will be seen hooked at FOMC two day policy meeting which starts from today. It is expected as the markets have already been panicked by the hints of QE tapering talks, the Fed might communicate strategically to calm the nervousness in the markets,” India Forex Advisors Founder & CEO Abhishek Goenka
Rupee resumed lower at 58.25 per dollar as against the last closing level of 57.87 per dollar at the Interbank Foreign Exchange 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.
Rupee 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 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 $85 billion in monthly bond purchases after US economy showed some recovery in recent weeks.
“Rupee depreciated by big margin today. It might have become a victim of a carry trade unwind, as a sharp appreciation in 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, Kotak Securities.
Rupee traded near its lowest level due to strengthening of dollar against major global currencies and the widening trade deficit.
The slight gains in the US dollar ahead of the FOMC (Federal Open Market Committee) meet have also contributed to the losses in the rupee, he added.
“The rupee traded near its lowest level owing strengthening of the dollar against major global currencies and the widening trade deficit. All the major Asian currencies were seen trading weaker against the US dollar ahead of the FOMC meet which will last for two days. The market participants will be keenly listening to his speech as his comments on QE tapering or continuing will be very significant for the currency markets. We maintain our bearish view on rupee,” added Goenka.
Meanwhile, crude oil prices rose in the Asian trade today, fuelled by growing concern over the Syrian conflict and political unrest in Turkey. 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 yesterday’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.
Sensex down 103 pts ahead of Fed meet
Sensex on Tuesday lost nearly 103 points due to selling pressure in rate-sensitive sectors and fresh weakness in rupee, amid global markets adopting caution ahead of US Fed’s decision over continuing monetary stimulus.
Shares of banking, consumer durables, PSU, capital goods and power declined on renewed selling pressure. Refinery, FMCG and auto shares also moved down on profit-booking.
Sensex resumed slightly higher at 19,329.17 and hovered in a range of 19,383.61 and 19,191.37. It finally ended at 19,223.28, showing loss of 102.59 points or 0.53 per cent. It had gained by 498.71 points, or 2.65 per cent, in past 2 days.
Traders 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 $85 billion in monthly bond purchases after US economy showed some recovery in recent weeks, brokers said.
“Weakness in global markets ahead of Fed’s decision over continuing its stimulus plan, falling Rupee and selling from FIIs kept the indices under pressure,” said Rakesh Goyal, Senior Vice President, Bonanza Portfolio limited.