Rupee pull backs on global currency scare, leaps off three week low

The rupee suffered a stunning reversal against the resurgent US dollar after two-straight weeks of upmove as renewed global currency turmoil and worsening trade war fears worldwide rattled the forex market in a big way. Caught in a fresh wave of global currency turbulence, the Indian unit fell by a staggering 23 paise to end at 68.83. It broke through the 69-mark to hit a fresh 3-week low briefly before trimming some of its losses.

The domestic currency swung widely between a high of 68.45 and a low of 69.03 in volatile trade.

Overall, trading sentiment wobbled once again in line with sell-off in other emerging market currencies hit by the sudden wave of risk-off on mounting fears over a political crisis in Turkey.

Widespread concerns about steadily growing country’s trade deficit as well as short-term debt liabilities and protectionist tendencies on the global front also weighed on the forex front.

Ongoing trade-war rhetoric between the US and China alongwith its trading partners too added some nervousness coupled with extreme bullish dollar overseas cues.

The Reserve Bank of India likely intervened in the foreign exchange market to support the rupee on Friday, after most emerging market currencies fell sharply on heightened global tensions, a forex dealer said.

In the meantime, country’s foreign exchange reserves fell to over 7-month low of USD402.7 billion in the week ended August 3. Total forex reserves dipped USD 1.49 billion from USD 404.19 billion in the week ended July 27, 2018, Reserve Bank of India (RBI) data showed.

Foreign investors, however poured in over Rs 2,300 crore in the local equities in July, after pulling out funds for three months in a row, largely due to expectations of a lower trade deficit amid fall in crude oil prices.

Earlier this week, the rupee opened a tad higher with positive bias at 68.57 from weekend close of 68.60 at the inter-bank foreign exchange (forex) market.

It later strengthened to fresh one-month high of 68.45 during the mid-week rally before retreating sharply towards the tail-end sell-off.

The local unit plunged sharply to hit a low of 69.03 at the weekend trade before concluding at 68.83, revealing a steep loss of 23 paise, or 0.34 per cent.

The rupee had appreciated by 24 paise in two-week rally.

The RBI, meanwhile, fixed the reference rate for the dollar at 68.7933 and for the euro at 79.6746.

The 10-year benchmark yield softened to 7.75 per cent.

On the energy front, crude prices rose more than one per cent on Friday as U.S. sanctions against Iran looked set to tighten supply. However, futures were lower for the week as investors worried that global trade disputes could slow economic growth and hurt demand for energy.

The Brent crude futures rose 72 cents to USD 72.79 per barrel. It was down roughly half a percent this week.

Globally, the US dollar rose to a near one-year high against a basket of currencies on Friday and the yen also made big strides, with investor appetite for risk dropping amid escalating global trade tensions.

The American economy is outgunning major competitors and the Federal Reserve is raising rates while other central banks are tiptoeing away from quantitative easing.

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The dollar index, which measures the greenback’s value against a basket of six major currencies shot up to 96.19 - its highest since July 2017.

Elsewhere, the British pound continued to meltdown for different reasons and hammered to the lowest level since June 27 last year as no-deal Brexit and Turkey related turmoil weighed despite positive news on the macro front after the UK second quarter GDP rose in line with the market expectation.

The euro collapsed to fresh 14-month low against the US dollar after the European Central Bank expressed concerns about non-hedged exposure of European banks to Turkish companies amid a tumbling lira and the darkening outlook for the Turkish economy.

Turkish lira, meanwhile briefly fell 20 percent to a record low after President Donald Trump authorized the doubling of metals tariffs on Turkey. The currency later traded down 15 percent against the dollar.