Rupee closes 61 paise higher against dollar
On Tuesday, the rupee closed at its all time low of 72.98, falling 47 paise against the US currency due to surging crude oil prices and escalating trade war worries. Earlier in the day, the Indian currency hit a historic low of 72.99 in late afternoon deals.
The rupee recovered from its all-time low in opening trade today. The Indian currency opened 27 paise higher at 72.71 against the dollar on likely RBI dollar sale via state-run banks to prevent further sharp fall to 73 mark. Later, the Indian currency closed higher by 61 paise at 72.37 level to the dollar against Tuesday's record closing low of 72.97.
"Rising global markets and steady crude oil prices helped the Indian rupee to recover, in turn boosting market sentiment," said Neeraj Dewan, director at Quantum Securities.
"If there is no further domestic news flow and globally things are settling, we may see some recovery in the market," Dewan added.
On Tuesday, the rupee closed at its all time low of 72.98, falling 47 paise against the US currency due to surging crude oil prices and escalating trade war worries.
Earlier in the day, the Indian currency hit a historic low of 72.99 in late afternoon deals amid higher current account deficit and rising trade tensions between US and China.India's current account deficit (CAD) widened to $15.8 billion, which is around 2.4 per cent of the country's Gross Domestic Product (GDP), for the quarter ended June as compared with $15 billion in the same quarter a year before, according to data announced on Friday. The weakening rupee against the US dollar and high crude oil prices in the international market led to a rise in current account deficit in the first quarter.
Currently, rupee is down over 13% and has become Asia's worst performing currency against the dollar in 2018.
Elara Capital in a note said, "We expect Rupee depreciation to add 40 bps to headline CPI in the medium term as this impact tends to play out with a lag. As such, our FY19 CPI inflation expectation of 4.7% will likely see an upside of 40 bps. RBI is likely to be pre-emptive and hike policy rate by 25 bps in response to rising mid-term risks. A rate hike could also act as an interest rate defence providing some support to the currency in a scenario where most EMs have begun to hike rates. As such, we expect RBI to hike policy repo rate by 25 bps in October with a likelihood of another 25bps in December 2018. In this backdrop, we expect USDINR to trade in the range of 70-74 in FY19."
A sharp spike in international crude oil prices weighed on the trading front towards the tail-end session even as the US dollar fell to seven-week lows after Donald Trump announced fresh 10 per cent tariffs on Chinese imports.
US President Donald Trump on Monday night announced to impose additional 10 per cent duties on Chinese imports worth $200 billion. Benchmark Brent crude futures were up $1.14 a barrel to $79.19 a barrel, after hitting a high of $79.37 in early Asian trade.
Since Monday, the rupee has plunged by 114 paise or more than 1.5 per cent as trade war concerns resurfaced and crude oil rebounded.
Kotak Securities in a note said, "We are not sure if the government should take any extraordinary measures to support the rupee at the current juncture. As discussed in our previous notes, the rupee may be simply correcting to its fundamental level after a period of overvaluation. In fact, the rupee seems to be more or less at its fundamental level. It can overshoot its fundamental level on heightened concerns but that may be the appropriate reason and time for the RBI and government to intervene. As of now, India's external position appears fine."