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Rupee slips to new lows as Fed weighs QE pullback

Wednesday, 19 June 2013 - 7:31am IST | Place: Mumbai | Agency: dna

FIIs' $4.7bn pullout from debt in the last 19 sessions also hangs heavy.

Talks of possible unwinding of quantitative easing by the US Federal Reserve continued to rattle global currencies, leading to high dollar demand.
In tango, the rupee slipped to all-time lows just a day ahead of the Federal Open Market Committee (FOMC) meeting, which will indicate the tapering of bond buying.

The currency closed at 58.78 per dollar on Tuesday, 90 paise or 1.6% lower than the previous close.

The rupee has lost 4% to the dollar rally since the start of this month. “Dollar demand will continue to stay strong tomorrow. It may fall past 59 levels again,” said Sandeep Gonsalves, forex dealer and consultant, Mecklai & Mecklai.

Last week, the rupee fell to 58.98 levels in intraday trade. Timely intervention of the Reserve Bank of India (RBI) kept the rupee from crossing 59 levels against the dollar. However, the central bank was not seen in the forex market on Tuesday.

After opening weaker at 58.24 levels, the rupee kept falling to close around the day’s low levels of 58.81 per dollar. Traders said that dollar supply from IT companies supported rupee while demand from oil marketing companies weighed heavy on the exchange rate.

“The major reasons for such a weakness have been huge debt outflows from the Indian markets and the FOMC meet which will be held today,” said Abhishek Goenka, Founder & CEO of India Forex Advisors. He added that all major currencies were seen trading weaker against the dollar. Foreign Institutional investors have sold over $4.7 billion of Indian debt in the last 19 trading sessions, as per data from Securities and Exchange Board of India.

Also, FIIs were net sellers of Rs 600 crore in the Indian equity markets, as per data from Bombay Stock Exchange.

All eyes are on the FOMC meeting that starts Tuesday. Globally, markets will pick up signs on whether the US Fed is planning to scale back its $85 billion monthly bond purchases. The economic projections for next two years may also have an impact on markets.

The dollar index as measured against six major currencies of the world rose up to 80.99 from 80.79 levels a day ago. If this continues, the rupee may continue to remain under pressure.

“We could see a range of 57.50 to 59.30 against the dollar over the near term, with the possibility of significant volatility in the pair,” said Anindya Banerjee, Currency Analyst, Kotak Securities.

Asian currencies hammered
Jitters over the Federal Reserve ending a period of easy money that has boosted global markets also sent other Asian currencies sliding on Tuesday
Indonesian rupiah fell as much as 0.7% but recovered to close 0.2% lower as the central bank provided dollar liquidity.

Philippine peso fell as much as 0.8% to 43.22 per dollar.

Malaysian ringgit declined 0.8% to as much as 3.1580 per dollar, the weakest since July 30 last year.

But US stocks climbed for a second day ahead of the FOMC meet. The S&P 500 index had advanced 0.8% on Monday, extending its gain this year to 15%.

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