The Indian rupee ended at a more than two-month low of 63.70 to teh US dollar on Tuesday with the non-deliverable forward (NDF) markets signalling more weakness in the Indian currency. Three-month forward contracts are trading at levels of 65.60 offshore; onshore, they’re ruling at roughly the same levels of 65.10.
The Indian rupee has lost 1.93% since the strong US jobs data released last Friday — the US economy added 204,000 jobs in October — which pushed up the dollar. On Tuesday, the dollar index rose to 81.20 from Monday’s 81.10, reflecting the US currency’s rise against a basket of major global currencies.
Even before that, though, the Indian rupee was losing ground, despite $17.5 billion coming in through the FCNR and bank swaps, exports beginning to pick up, and the current account deficit (CAD) back on track to being below $55 billion for FY14. With about a third of the demand for dollars from oil companies back in the market — demand was being met by the RBI through a special window since August 28 — the currency had hit a five-week low of 62.76 during Thursday’s trading before closing at 62.40.
Weakness has persisted with the expectation the US Federal Reserve will start tapering its stimulus of $85 billion of monthly bond purchases sometime in January rather than in March. That could mean far smaller dollar inflows into emerging markets or even a flight of funds. Dollar flows from foreign institutional investors have been down to a trickle and FIIs pulled out $46.54 million on Monday.
“There is a sentiment impact which the market will have to bear. There was a world before QE but since the tapering talk started, people are getting jittery,” said Hitendra Dave, head of global markets, HSBC. “I do not think most people around the world or a lot of economic agents in India believe the currency has any prospect of stabilising fairly soon, unfortunately — the events of June-August are too recent for people to forget.”
However, some improvement in domestic fundamentals by way of a fall in the CAD to below $60 billion in 2013-14 could give succour to the currency and prevent a fall to the record low of 68.85 hit in August, dealers said.
“We have seen the narrowing trade deficit and we have seen the reserves numbers. Also, we have already got $17 billion on FCNR. I don’t think we would see