The rupee fell again on Tuesday, crossing 73 level to close at 73.30 a dollar level, as coronavirus positive cases increased to six in India.
The Reserve Bank of India (RBI) did not intervene in the market, even as the offshore markets showed rupee to be weaker by 10-11 paise against the dollar till the market close in India.
However, after a 50 basis points rate cut by the US Fed, the offshore rates fell to 72.92 a dollar. At 8.50 pm IST, the rupee was trading at 73.09-10 a dollar in the offshore markets. For most part of the day, the rupee was at 73.40 level in the offshore markets.
The partially convertible currency had closed at 72.73 a dollar on Monday. On Monday also, rupee slid rapidly as equities fell on confirmed coronavirus cases in India. However, on Tuesday, the equities gained, but rupee loss continued.
According to a senior currency trader, the arbitrage opportunity offered between the offshore and onshore markets was too attractive for speculators, who pulled the spot rupee down onshore. “It looks like rupee will continue to remain volatile in this month. If the virus is contained in India, the equity flow will be strong, but if the threat perception is as high as other countries, then rupee should depreciate steadily,” said a senior currency dealer with a foreign bank.
Technical chartists pointed out that the rupee has breached the seven–month long range of 70.70-72.46. Whenever such range gets broken, the rupee depreciates by Rs 1.5 to Rs 2.5 against the dollar. “All the factors that we typically associate with a panic move in USDINR are evident at this point. One month offshore forward points are much higher than onshore indicating desperation to exit rupee assets. The volatility curve has inverted. Risk reversals have spiked. We are seeing correlations that have held well in recent times breakdown,” Goenka of IFA Global had said before the Fed rate cut.
The immediate next level could be easily 73.5- 74 a dollar, according to Ritesh Bhansali, vice-president, Mecklai Financials. The Fed rate cut could give some temporary respite though.
“Indian economy is run by financial and services industries; both can be hit badly by the coronavirus scare. And if the virus spreads here, the effect could be serious. Rupee, no doubt, will remain under pressure in the coming days,” Bhansali said.
Amidst the crisis, however, the RBI assured the markets that it was closely following the situation and will step in if needed. The G7 finance and central bank chiefs issued a statement assuring that they would use appropriate tools to achieve strong sustainable growth and to safeguard against slowdown. They will also co-operate timely and effective measures to counter a slowdown.