Re falls as N Korea nuclear test may spur outflow

The rupee fell for the first time in seven days, weakening by 0.4 per cent to 47.29 a dollar, on concern overseas investors will pull money out of Asia after North Korea said it held a nuclear test today.

The currency declined the most in almost two weeks as the MSCI Emerging Markets Index of stocks dropped, adding to speculation global funds see increased risk. A gauge that tracks the dollar against six major currencies rose for the first time in six days, indicating investors are opting for the relative safety of the greenback.

“The rupee is falling and it’s a reaction to the North Korean nuclear test,” said Sudarshan Bhatt, chief currency trader at state-owned Corporation Bank in Mumbai. “Banks are reversing dollar short positions to reduce risk. Stocks are expected to drop, and that could add to the rupee’s weakness.”

The currency climbed 4.9 per cent last week, the best performance since March 1996. A short position is a bet that an asset or currency will fall. Offshore contracts indicate bets the rupee will trade at 47.46 to the dollar in a month, compared with expectations of 47.22 as on May 22. Forwards are agreements in which assets are bought and sold at current prices for future delivery. Non- deliverable contracts are settled in dollars rather than the local currency.

North Korea conducted a nuclear test today, the communist nation’s official Korean Central News Agency said. The underground test was “successful”, according to the report. The ICE’s Dollar Index, which tracks the greenback against the euro, the yen, the British pound, the Canadian dollar, Swiss franc and Sweden’s krona, climbed 0.3 per cent.

Yields rise to 1-mth high
The yield on the benchmark 10-year note rose to the highest level in more than a month as the government increased by 25 per cent the size of two bond sales this month. The yield on the 6.05 per cent note due February 2019 climbed seven basis points to 6.56 per cent at the close, according to the central bank’s trading system. The price fell 0.50, or 50 paise per 100-rupee face amount, to 96.40. A basis point is 0.01 percentage point.

India plans to raise a record Rs 2.41 lakh crore from bond auctions in the six months ending September to revive growth. The government plans to sell Rs 15,000 crore of securities on May 28.