The rupee has crossed the 69-level against the US dollar for the first time. On Thursday, it was recorded to be touching a record low of 69.09 . Reasons being higher crude oil prices and concerns of a US-China trade war. The rupee crossed the 69-level within the first hour of trade.
Steps has been taken by The Reserve Bank of India as it sold dollars through state-run banks, helping the currency recover to close at 68.79, against Wednesday’s close of 68.63.
The immediate fallout of rising crude prices and weakening exchange rate will be higher retail fuel prices. This will translate into higher inflation.
“The rupee is definitely under pressure now. We heard that the RBI intervened, which helped the rupee to recover at close. If global issues heat up further and if the rupee crosses the 69.20 resistance level, then we can expect to see the exchange rate at 70 in the medium term,” said M Hariprasad, senior VP and treasury head at Centrum Direct.
Part of the pressure on the rupee was also because of month-end demand. Dealers are waiting for next week to see how the demand for dollars variate.
The weaker rupee timed badly for students studying in overseas universities. This is the time of the year when students purchase dollars towards fees.
In August 2013 also the rupee had touched value low of 68.83. But this time its global. However, the domestic macroeconomic situation improved in 2013. Since 2013, the rupee had firmed up to a high of 58.46 in May 2014 as crude oil prices collapsed. This year, the resurgence of crude prices has put pressure back on the rupee which has weakened 7.7% till date, making it the worst performer among Asian currencies.
Indian Rupee against US Dollar -Crossed the level for first time
Prospects of a weaker rupee boosted IT stocks, which generate most of their revenue from exports and don’t have major import expenses. Infosys gained 1.5% even as the sensex weakened by 0.5%. Some dealers feel the currency depreciation so far has not been out of place when seen over a period. According to K N Dey, managing partner at forex advisory firm United Financial Consultant, the withdrawal of buyers’ credit in the wake of the Nirav Modi scam at Punjab National Bank could have had a hand in reducing the supply of dollars.
“I think the present rupee weakness is overdone though there is a small chance of the rupee touching 70,” said Dey. He adds that the weakness could be driven by trades in the non-deliverable forward (NDF) market. The NDF market is a reference to trade in rupee derivatives where banks sell rupee for settlement at a future date.
Barclays has predicted that the Indian currency would be at 72 by the year end while DBS Bank sees the rupee at 71 to the dollar by June 2019.