Rupee has shed nearly 3% in two weeks as risk aversion worldwide weighed on high-yielding emerging market currencies amid worries over impact of the US ?fiscal cliff? on the world?s largest economy.
The currency could fall further if the government does not take concrete steps on foreign direct investments (FDI) in key sectors that it has proposed two months ago. Rupee ended at 55.17/$ on Friday, down 0.75% from a week ago. Most Asian currencies and euro have weakened this week because of low risk appetite. Euro has shed 0.10% over the week and was trading around $1.2735 on Friday.
The US ?fiscal cliff? refers to automatic spending cuts and increase in tax rates taking effect by December. The economy is expected to be pushed back into a second recession once these measures take effect. US president Barrack Obama is pushing Republicans to support higher taxes on wealthier Americans.
A US economic recession could prompt investors globally to shun high-yielding currencies as worries over global growth could escalate, dealers said.
In Friday?s session, the dollar?s demand from oil importers and from some gold importers also dragged the rupee down, dealers said. ?Oil companies were seen buying dollars around 54.90-55.00/$ levels today,? said a dealer at a public sector bank. Latest data show that gold imports have increased in July-September owing to strong demand ahead of festival season. Around 223 tonnes of gold were imported during the quarter, according to World gold council.
Currency market players said the winter session of Parliament, starting November 22, will be key for rupee as reform measures announced by the government such as FDI in retail will be up for voting. In September, the currency had gained over 5% after the government proposed allowing higher FDI in retail, broadcast and aviation sectors. The government subsequently also indicated a roadmap for fiscal consolidation.
?If concrete measures are not taken in the winter session, rupee will fall further next week,? said P Mukherjee, head of treasury at Axis Bank. Mukherjee said the fall may not be very large.
The currency has since weakened due to worries over the US ?fiscal cliff? and the likely impact of the same on investments into high-yielding emerging market assets globally. Most dealers expect rupee to stabilise around 55.20/$ as at the level several exporters are willing to sell dollars. But if the winter session does not yield concrete measures on FDI, the currency could weaken to 55.80-56.00/$ level, they said.
Rupee?s weakening is also contingent upon the RBI?s intervention in the forex market. RBI has been conspcious in its absence despite the currency weakening sharply for two successive sessions this week. Some dealers said that mild intervention was observed on Thursday, which helped the rupee recoup some losses towards close.
The rupee had recouped from session low of 55.09/$ to end at 54.69/$ on Thursday.
