Re below 47, yen at 13-year high

Dollar falls after Federal Reserve’s move to slash rate to near-zero levels.

Heavy selling of dollars in the wake of the US currency’s weakness against major global currencies saw the rupee close below the 47-mark against the greenback for the first time in over two months.

According to Bloomberg data, the rupee climbed 1.5 per cent and ended the day at 46.95 against the dollar. From a low of 50.61 on December 2, the Indian currency has gained nearly 7 per cent. But the 16 per cent depreciation against the dollar so far in 2008 is still the biggest since 1991, when the economy was hit by a balance of payments crisis.

While a depreciation of the currency is usually welcomed by exporters, the volatility in the rupee has made them wary as many had hedged their risks at higher levels. What will add to their woes is the steep appreciation of the Japanese yen against the US currency, which is used by many exporters to hedge their foreign currency and interest risks. The yen hit a 13-year high of 87.15 against the greenback, the highest since July 1995.

However, today, the yen fell 1.2 per cent to 88.29 against the dollar after Japan’s government signalled it may intervene in the foreign exchange market for the first time in four years as the currency’s appreciation may affect exporters.
 

DOLLAR DOLDRUMS
	Jan 02,08	Dec 18,08	% chg
Korean won	936.95	1291.35	-37.82
Pakistani rupee	61.32	79.45	-29.57
Indian rupee	39.44	46.95	-19.05
Indonesian rupiah	9386.00	11075.00	-17.99
Thai baht	29.75	34.33	-15.39
Malaysian ringgit	3.31	3.46	-4.47
Taiwan dollar	32.45	32.47	-0.04
Singapore dollar	1.44	1.43	0.61
Hong kong dollar	7.81	7.75	0.79
Japanese yen	109.66	88.32	19.46
Source : Bloomberg

The dollar has depreciated by 21 per cent against the yen this year, the most since 1987, as more than $1 trillion of credit-market losses sparked a seizure in money markets and threw the world’s largest economy into a recession. The US currency has weakened against most currencies, including the euro, and dropped 1.5 per cent to $1.4639 to a euro from $1.4419, weakening beyond $1.47 for the first time since September 25.

The dollar declined against the euro on speculation that the US Fed has fewer tools left to combat a recession. The central bank lowered its target rate for overnight lending on December 16 to a range of zero to 0.25 per cent, the lowest among major economies, from 1 per cent. The central bank reiterated plans to purchase agency debt and mortgage-backed securities and said it will consider buying Treasuries.

The greenback was weak not just against major rivals, but also against other Asian currencies like the Korean won, Philippine peso, Malaysian ringgit and Thailand’ baht.

In the Indian market, the rally in the equity markets today also helped the rupee appreciate against the greenback.

“The dollar’s weakness globally prompted banks to sell the US currency. Exporter dollar (sales) and likely FII inflow with rise in shares aided the rupee rise,” said a dealer of a foreign bank. “Exporters have been selling dollars today as they fear the rupee to rise more,” added another dealer.

In addition, demand for dollars in the Indian markets has eased as imports are seen to have slowed down due to lower demand for inputs in the wake of the economic slowdown. Many manufacturing sectors, including automobiles, consumer durables, cement and steel, have cut down production due to lower demand in the domestic and international markets.

Further, oil companies, which were heavily buying foreign currency in the local markets, have scaled down their purchase due to a fall in crude oil prices from a peak of $147 a barrel to around $45 a barrel.

Also, foreign institutional investors, which were selling equities in the Indian market to raise cash, are now net buyers this month. According to Sebi data, so far in December, FIIs have been net buyers to the tune of $530 million in the equities market. But so far in 2008, they have been sellers to the tune of over $13 billion.