Rupee swoons past 60/$, gold melts as US economy rebounds

The pain seems far from over. On Wednesday, the rupee fell past the psychological mark of 60 per dollar as foreign investors continued to pull out from Indian equities and bonds.

The currency closed at its lifetime low of 60.73 after dipping to as much as 60.77. That’s a loss of 1.8% just in a day, the steepest decline in emerging market currencies.

Since its downhill ride started in May, the rupee has lost about 12% against the dollar.

Foreign exchange traders said regular intervention by the Reserve Bank of India (RBI) had limited the rupee’s fall to around 59 on Wednesday. But panic struck in the last two hours of trading.

“It was a one way trade after 3pm. Foreign banks began buying dollars heavily on behalf of their clients. Dollar supplies from the RBI could not have met with such high demand,” said a forex trader.

The panic was not limited to the forex market. Yields on government bonds jumped to touch the upper trading band forcing the self-regulator to ease curbs.

The yields on the 10-year benchmark 7.16% bond jumped 8 basis points to 7.58%.

Going forward, rupee is expected to fall further in absence of any solid measures from the government or the RBI. “Rupee in the near-term is expected to test 62 and could further weaken to levels around 64 levels and strengthening of the Dollar Index will mainly act as major factor to further weakness in the currency,” said Reena Rohit, chief manager, currency research, at Angel Broking.

And gold shed Rs680 to hit a one-month low of Rs26,145 per 10 gram after it tanked to a 33-month low globally. The improvement seen in the United States economy was the primary trigger for this sell off.

In the last two months, gold has lost over 16% globally, but in India the impact has been limited because the rupee fell 13%. Since gold is traded in dollars a weaker rupee provides price support to the yellow metal.

Going ahead, most analysts maintain a bearish on gold. Kishore Narne of Motilal Oswal Securities also expect it to fall further. “We believe that by the end of this year gold will touch Rs24,000/10 grams,” said Narne.

Gold
Yellow metal takes a beating
Gold shed Rs680 to hit a one-month low of Rs26,145 per 10 gram after it tanked to a 33-month low globally.

Improvement seen in the United States economy was the primary trigger for this sell off.

In the last two months, gold has lost over 16% globally, but in India the impact has been limited because the rupee fell 13%.

Since gold is traded in dollars a weaker rupee provides price support to the yellow metal.

“We believe that by the end of this year gold will touch Rs24,000/10 grams,” said Kishore Narne of Motilal Oswal Securities.