Rupee hits another low on rise in crude oil prices, equity selloff

Caution ahead of the US Fed meet outcome weighs on currency

The rupee depreciated to a fresh low of 84.38 per dollar on Thursday as foreign investors continued to sell domestic equities and crude oil prices rose. The caution ahead of the US Federal Reserve meeting outcome further weighed on the Indian unit.

Market participants said that with strengthening dollar and rise in US yields after the US presidential election results, the Reserve Bank of India (RBI) has been allowing gradual depreciation of the rupee in line with its Asian peers.

  The local currency had touched a new low of 84.28 per dollar on Wednesday after Republican candidate Donald Trump won the 47th United States (US) presidential election decisively, defying expectations and securing a greater number of votes than Kamala Harris.

 

  “It seems the RBI has gone slow on its sales of dollar after the rise in US yields, expecting more outflow from FPIs in the coming months… With Asian currencies down, US dollar up, and yields up, the RBI does not have any option but to allow the rupee to fall to ensure that REER (Real Effective Exchange Rate) remains competitive for our exports. If the FOMC (Federal Open Market Committee) is a bit hawkish in its tone or does not cut rates today, or says it will not cut in December, then we could see another fall in rupee to the extent of 84.50 in a slow and steady up move,” said Anil Kumar Bhansali, head of treasury and executive director at Finrex Treasury Advisors LLP.

 

  Trump is seen to strengthen the dollar and push US yields higher, driven by anticipated populist measures that could increase borrowing, inflation, and yields. Trump has pledged to implement a 10 per cent tariff on imports from all countries and impose a 60 per cent duty on Chinese goods.

  “The former President (Joe Biden) has stated a preference for a weaker US dollar. But we think the policies Trump has advocated are likely to lead USD higher, as it did overnight. This fundamental rationale is due to increased tariff risk, geopolitical uncertainty, and expectations for a more expansionary fiscal agenda,” Morgan Stanley said in a note.

  The rupee fell by 0.38 per cent in the past two sessions. However, it performed better than most of its Asian peers. It ranked fifth among best performing Asian currencies, while Malaysian Ringgit fell the most during the period.

  RBI makes 10-yr sovereign green bonds fully accessible to foreigners 

The government’s sovereign green bonds with a 10-year tenor issued in the second-half of the current fiscal year will be available for access to foreign portfolio investors under the fully accessible route, the central bank said on Thursday.

  The fully accessible route includes securities that do not have any restrictions on holdings by foreign investors.

  The new directions come into effect immediately, the Reserve Bank of India said.