The Indian rupee extended its losses on Thursday morning, falling to a fresh record low of 70.82 intraday. The weakness is on the back of pressure from higher oil prices, which is trading above USD 69.50 per barrel. Bond yields are also weighing on the currency, with the 10-year G-sec yield touching 7.93 percent.
It has opened marginally lower at 70.63 per dollar versus previous close 70.59.
According to IFA Global currency report, the rupee has underperformed its EM counterparts and is likely to continue doing so as higher crude prices weigh adversely on our trade deficit, unlike current account surplus in EM countries. The likely range 70.45-70.90 with an upside bias.”
Among drivers for the Rupee, the Yuan, Lira, crude and US yields are the most important to watch out for. Parallel shift higher in US rates would be negative for EM currencies.
Importers were advised to cover short-term exposure on a dip towards 70.20 levels, while exporters are advised to hold for long-term forward bookings with the stoploss of 69.75 as short-term trend remains bullish, said IFA Global.
On Wednesday, the rupee closed at a historic low of 70.59 after it plunged to all-time low of 70.65 on the back month-end dollar demand from importers and foreign capital outflows.
Yesterday rupee posted a biggest single session decline against US dollar since August 13, 2018.
Vivek Rajpal, Asia interest rates strategist, Executive Director, Nomura said, “One big reason why rupee is behaving in this fashion is due to its sensitivity to oil prices which is very high. The market is generally differentiating between the current account deficit and current account surplus nations. In a way, rupee is suffering due to current account deficit and its price sensitivity to oil prices.”
“We expect the rupee to head towards Rs 71-72/USD but in the near-term there is a higher likelihood of consolidation at current levels,” he added.
The rupee has fallen by 10 percent this year so far – making it the worst-performing currency in Asia.