The rupee crossed 76 a dollar for the first time as stock market tumbled amidst a rise in coronavirus cases globally, with more than 400 cases reported in India.
The rupee closed at 76.20 a dollar, down from its previous close of 75.20 a dollar. In the intraday trade, the rupee touched 76.30 a dollar. Currency dealers say the Reserve Bank of India (RBI) intervened to keep the rupee below 76, but let it fall further as pressures from the markets built up. Other emerging markets currencies also fell 0.5-1 per cent against the greenback as the dollar index remained at 102. The Sensex, benchmark equity index of the BSE, closed at 25,981.24 points, down 3,934.72 points, or 13.15 per cent. Trading was halted in the morning as the Sensex fell rapidly.
Currency dealers are not willing to hazard a guess as to where the rupee can go, but some of them say the equities could have been oversold for now, and so that would give some support to the rupee as well.
“The rupee should trade between 75 and 76.50 a dollar and not breach that level unless there is a huge spike in COVID-19 cases in India,” a currency dealer with a foreign bank said.
The fall in rupee may also attract investors looking for value for their money with hopes of a strong bounce back, depending on how India tackles its crisis, said Sunil Kumar Katke, business head (commodity and currency) at Axis Securities.
“The rupee depreciation may continue in the short term and may touch levels of 76.75 to 77 ranges, which can be used for selling dollar targeting levels of Rs 74 in a couple of months. Traders may look at these levels for a sell and rollover strategy in futures platform, eyeing a premium of Rs 0.20 every time they roll over their positions,” Katke said.
The volatility in the exchange rate is also the result of an extremely thin trading volume, currency dealers said. Traders are largely working from home and are executing orders largely to fulfill the need of the clients. Even as dollars are flowing out of the country with continued fall in stocks, the demand from oil marketing companies have disappeared largely as oil prices have fallen to $25 a barrel level, dealers said.
“This uncertainty has triggered a flight to safety. There is a scramble for US dollars. US treasury yields have dropped on account of risk aversion,” said currency consultant IFA Global in a note to clients.
However, RBI’s dollar swap operation saw tepid response from currency dealers. Instead of $2 billion on offer, banks bid for only $1.53 billion, out of which the central bank accepted bids for only $650 million.
The RBI announced a series of measures, including secondary market bond purchases, and FX swaps to support liquidity in the system. The RBI also stands ready to infuse liquidity in the market as and when needed. It has a forex reserve of more than $481 billion, which can be effectively used to address any dollar shortage in the market.
However, currency dealers say when all the currencies are falling, the RBI may not want to intervene aggressively.
“Small interventions work perfectly in a thin market, and dollar being fungible, there is no end to how much the central bank can use,” said the head of treasury of a bank.
"The Indian rupee is expected weaken further against the dollar even though USD-INR pair is trading at all-time high levels .... Downside 74.40 level will act as support for further upside rally up to 78 levels," said Sriram Iyer, senior research analyst at Reliance Securities.