Rupee plunges, bonds strengthen as Trump races towards White House

Rupee opened lower on possibility that equity markets will tank following curbs on high value denomination notes

The Indian rupee saw volatile session in the morning trade, closely following cues about the US election. 

As it became apparent that Donald Trump is on his way to the White House as 45th President of the United States, rupee rapidly gave up gains it accumulated in the morning trade. 
 

The rupee had opened at 66.80 a dollar level on Wednesday from its previous close of 66.62 a dollar. The rupee had opened sharply lower on the possibility that local equity markets will tank following curbs on high value denomination notes by Prime Minister Narendra Modi. 
 

The dealing room of banks are buzzing with activity now and traders were fearing taking positions on the exchange rate, said a currency trader at a foreign bank. The market will wait for clear outcomes before taking a call on rupee level in the near future.
 

 

“For now, it is full risk-off sentiment. Taking positions here is risky,” said the currency dealer who did not wish to be named. 
 

The local currency strengthened to 66.72 a dollar as news trickled in that Hillary Clinton was ahead, but soon reversed its gain on Trump’s wins in key states. 
 

Interestingly, the dollar index, which measures the greenback’s strength against all major currencies, was down 1.83 per cent. Ideally, it should have prompted rupee and other Asian currencies to strengthen against the dollar, but that is not the case as global stock indices have tanked fearing a new set of uncertainty in the financial world. 
 

At 10.35 am, the Indian rupee was trading at 66.8675 a dollar, after falling as much as 66.90 a dollar level. Had the dollar strengthened against other currencies on safe haven concern, rupee would have fallen even more, say currency dealers. 
 

The BSE Sensex was trading 3.70 per cent, or 1019.52 points down at 26,571.62. The benchmark 10-year bond though, have rallied from its previous close. The yields fell about eight basis point in the morning trade. 
 

Bonds rally in uncertain times as investors seek the comfort of fixed income security. The 7.59 per cent 10 year bond was trading at 6.7479 per cent from its previous close of 6.798 per cent at 10.35 am.