The Indian rupee (INR) today weakened sharply against the U.S. dollar, falling to the year’s lowest level against the greenback. A broad dollar strength, weak home equity markets, and outflows from Indian capital markets hurt the rupee. Starting flat at 71.55 against the U.S. dollar, the rupee fell to 71.98 at its day’s low – its lowest this year – before settling at 71.81. On Wednesday, the rupee had closed at 71.55 against the U.S. dollar. Indian stocks markets too fell sharply today, with Sensex sinking nearly 600 points lower.
Below are 5 things to know about rupee vs USD dollar trade:
1) Huge flows from Indian equity markets over the last two months have weighed on the rupee. FPIs have eliminated over $3 billion from Indian markets in the past two months after the government hiked tax on super-rich in the Budget. Indian market regulator Sebi on Thursday had eased norms for foreign portfolio investor registration and certain relaxed criteria for FPI analysis. Notwithstanding these measures, Indian equity markets fell sharply today, with Sensex tumbling almost 600 points.
Indian equity market index Nifty is down about 10% from its June highs. A slowing economy and flows from foreign investors have hurt investor sentiment.
2) The U.S. dollar had leaped overnight to 98.30 against a basket of currencies from a low of 97.94. This followed the release of the minutes of the U.S. Federal Reserve’s July meeting which showed policymakers were deeply divided over whether to cut interest rates. “Fed minutes were hawkish. Most members thought of the cut as an insurance cut or a mid-cycle policy adjustment rather than the beginning of a new rate cut cycle,” forex advisory firm IFA Global said in a note.
3) Higher oil price also weighed on the rupee. Oil prices have steadied above $60 a barrel, supported by a drop in U.S. crude inventories and OPEC-led supply cuts, although concerns about the global economy weighed. Higher oil prices widen India’s trade deficit and put pressure on the rupee. Analysts say that India’s trade deficit, which narrowed in July primarily due to lower oil and gold imports, may rise in coming months as gold and oil imports normalize, state analysts.
4) Rupee traders next focus will be now on U.S. Fed chief Jerome Powell’s speech at Jackson Hole, scheduled for tomorrow, and G7 meet in France over the weekend. Jackson Hole symposium of central bankers starts today. ECB meeting minutes and U.S. weekly jobless claims data also due today.
5) Elsewhere, today China’s yuan fell to fresh 11-year lows against the U.S. dollar amid worries about the deepening China-US trade war.