Rupee weakens for 2nd day straight on global dollar strength, weak domestic equities

NEW DELHI: The rupee extended its losses against the US dollar so far this week, weakening up to 0.1 per cent so far on Tuesday as the greenback strengthened globally and domestic equities continued on their losing streak, dealers said.

The partially convertible Indian rupee opened at 74.48 per US dollar as against 74.4050 at previous close. So far, the local currency moved in a band of 74.4800-74.5050 against the greenback.

With the Fed officials talking of a faster pace of bond tapering amid surging inflation in the US, the dollar has strengthened sharply this week, with the dollar index shooting past the crucial 96 level.

The index, which measures the US dollar against a basket of six major rival currencies, was last at 96.56. It was at 96.07 at the end of the previous week.

The re-appointment of Jerome Powell as the Chairman of the Federal Reserve also helped the US dollar to hold on to an over 16-month high as investors viewed the move as being in sync with plans to tighten monetary policy in the world’s largest economy.

With the domestic equities tumbling again this week, foreign banks were said to be buying dollars for overseas investors looking to pare their holdings of local stocks, dealers said.

At 9.32 am, the BSE flagship Sensex was down 353 points or 0.60 per cent to 58,113. NSE benchmark Nifty declined 89 points or 0.51 per cent to 17,328.

Amid the unfavorable signs emanating from the US, the only respite the rupee received was from a decline in global crude oil prices, dealers said.

Crude oil prices fell for the second straight day as a resurgence of Covid-19 cases in Europe fuelled concern of weak demand for the commodity and as some countries planned release of emergency crude reserves.

Brent crude futures fell 30 cents, or 0.4 per cent, to $79.40 a barrel. US WTI crude futures fell 43 cents, or 0.6 per cent, to $76.32 a barrel.

Falling crude oil prices are a welcome sign for India’s trade deficit and inflation as the country is one of the world’s largest importers of the commodity.

“The dollar strength is a worry. The Reserve Bank of India has adequate FX reserves but there is a possibility that they may not want to go against the tide if there is a global shift in the Fed interest rate view,” a dealer with a large private bank said on condition of anonymity.

“Oil and some amount of exporter selling (of dollars) are cushioning the rupee but we could well be going back to 75/$1 levels, especially as equities are also crumbling. The overseas view could be shifting, especially as we are nearing the end of the calendar year,” he said.

Government bonds also sold off, with yield on the 10-year benchmark 6.10 per cent 2031 bond last at 6.37 per cent, two basis points higher than previous close. Bond yields and prices move inversely.

Bond prices fell on account of a rise in US Treasury yields and as traders fretted over the possibility of foreign portfolio investors paring their holdings of Indian sovereign debt amid speculation of tighter US monetary policy.

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