Rupee in free fall, trips 35 paise on panic dollar buying

The rupee took a beating for the second straight day today, plunging by a hefty 35 paise to hit a fresh six-month low of 65.45 a dollar due to heavy demand for the US currency from importers amid foreign fund outflows.

Highly volatile equities along with extremely strong US dollar, which climbed to a fresh three-week high against major global currencies, predominantly put pressure on the rupee.

This is the lowest closing for the domestic currency since March 23, when it had settled at 65.52 per dollar.

A sharp uptick in the US dollar demand amid rising prospect of Fed rate hike by the end of this year along with exodus of capital outflows were the trigger points exerting pressure on the rupee, a forex dealer commented.

The Indian currency had ended at 65.10 on Monday.

The rupee today resumed sharply lower at 65.24 against overnight close of 65.15 at the Interbank Foreign Exchange market on steady demand for the American currency from importers and banks.

The follow-through weakness eventually pulled down the home currency to a new intra-day low of 65.46 in late deals as state-run and private banks stepped up dollar purchases for their importer clients.

The rupee finally ended at 65.45 a dollar, revealing a sharp loss of 35 paise, or 0.54 per cent.

The RBI, meanwhile, fixed the reference rate for the dollar at 65.3371 and for the euro at 77.4310.

Corporate dollar purchases and dollar outflows from equity markets too weighed on the forex trade.

Foreign portfolio investors (FPIs) sold shares worth Rs 1,249.45 crore yesterday, showed provisional data from the stock exchanges.

Geopolitical tensions in East Asia heightened after North Korea's foreign minister said on Monday that US president Donald Trump's recent remarks are a declaration of war and that Pyongyang has the right to take countermeasures, including shooting down US aircraft.

Domestic bourses showed some stability after horrific two-day bloodbath spooked by escalating geopolitical tensions over the Korean peninsula, though profit-taking at higher levels extended the weakness into a sixth straight session amid tepid Asian sentiment.

Crude oil prices extended gains with international benchmark Brent hitting a 26-month high supported by Turkey's threat to cut crude exports from Iraq's Kurdistan region as well as signs that market rebalancing is accelerating.

The dollar index, which measures the greenback's value against a basket of six major currencies, was marginally weak at 92.86.

In cross-currency trades, the rupee fell back against the pound sterling to end at 87.91 from 87.77 per pound and continued to drift against the Japanese yen to settle at 58.48 per 100 yens from 58.05 earlier.

The home unit, however, advanced further against the euro to finish at 77.20 from 77.30 yesterday.

Elsewhere, the euro continued to suffer from after- effects of a lacklustre win by Angela Merkel and tumbled to hit one-month low against dollar.

In forward market today, premium for dollar recovered modestly due to mild paying pressure from corporates.

The benchmark six-month premium payable in February edged up to 114.50-116.50 paise from 112-114 paise and the far forward August 2018 contract also firmed up to 255.50-257.50 paise from 250-252 paise on Monday.

On the International energy front, crude prices hovered near 26-month highs on the back of supply crunch following the 1.8 million bpd of supply cuts by OPEC and non-OPEC producers amid signs of rebalancing is accelerating.

Brent crude futures slipped 17 cents to $58.85 a barrel in early Asian trading, having earlier hit $59.49, the highest since July 2015 and more than 34 percent above the 2017 low.

US crude WTI futures eased 10 cents to $52.12 a barrel, after hitting a 5-month high of $52.43 a barrel.

TRIGGER POINTS

• Highly volatile equities along with extremely strong US dollar, which climbed to a fresh three-week high against major global currencies, predominantly put pressure on the rupee
• This is the lowest closing for the domestic currency since March 23, when it had settled at 65.52 per dollar
• A sharp uptick in the US dollar demand amid rising prospect of Fed rate hike by the end of this year along with exodus of capital outflows were the trigger points exerting pressure on the rupee