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Rupee sinks to 71-mark on high crude oil, dollar outflows

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Press Trust of India Mumbai
The rupee today slumped 26 paise to breach the 71 level against the US dollar for the first time in history due to worsening macro environmental factors and heavy month-end dollar demand from importers.
The domestic unit settled the day with a loss of 26 paise, or 0.37 per cent at its lifetime low of 71.00 to the dollar.
Analysts said the RBI is intervening very selectively to contain volatility while the government seems to be comfortable amid a slide in emerging market currencies.
The opposition Congress blamed the "failed" economic policies of the Narendra Modi government for the depreciation of the rupee to a record low.
However, a report by SBI said that one should not get too much worried about a "little bit of depreciation" as the currency is still "overvalued".
SBI managing director PK Gupta said that the rupee has been faring better than many of its peers, including the Turkish, Argentinean, and Indonesian currencies.
An HDFC Bank report forecast the rupee to trade in the range of 70-71 until March 2019.
The rupee has been the worst among the large emerging market peers, losing over 10 per cent in 2018 so far. The currency fell more than 3.7 per cent in August and over 1.5 per cent this week as high crude oil prices and expectations of US Fed rate hike took a toll on the rupee.
US Federal Reserve Chairman Jerome Powell on Wednesday reiterated the case for continued gradual rate hikes remains strong.
Dealers said uncertain economic cycles, geopolitical worries along with macro headwinds and confusing monetary messages are leaving investors in a deep fog about future exchange rate trends.
Investor rushed to safe bets amid mounting global trade war fears after reports that the US President Donald Trump was willing to apply tariffs on USD 200 billion worth of Chinese goods as soon as next week.
"The rupee has made a new record low of 71 today on the back of rising crude oil prices in the international market. Emerging market currencies are under pressure, this has also weighed on the rupee. The dollar index continues to remain higher on expectations of aggressive interest rate hike by the Federal Reserve," Rushabh Maru - Research Analyst, Anand Rathi Shares and Stock Brokers said.
The domestic unit has also been under pressure due to foreign institutional investors persistently selling their equity holdings, which typically results in increased demand for the dollar.
The current rebound in global crude prices to USD 77 per barrel and hardening of global interest rates clearly shows that the tide is turning against the macro fundamentals.
The stumbling rupee opened with a gap-down at 70.95 against overnight close of 70.74 at the inter-bank foreign exchange (forex) market.
Facing immense pressure, it descended sharply to hit a life-time low of 71.00 in early morning deals with no support coming from the RBI.
It later managed to pull back some part of the early steep losses in mid-afternoon deals, but succumbed to fag-end selloff to end at its historic level of 71, revealing a loss of 26 paise, or 0.37 per cent.
The Financial Benchmarks India private limited (FBIL), meanwhile, fixed the reference rate for the dollar at 70.9255 and for the euro at 82.8391.
Globally, the US dollar traded little changed against its key rivals. Against a basket of other currencies, the dollar index is up at 94.82.
In the cross currency trade, the rupee weakened further against the British pound to close at 92.12 per pound from 92.07 and also dropped against the Japanese yen to settle at 64.07 per 100 yens from 63.46 on Thursday.
The home unit, however finished unchanged against the euro at 82.69.
The bond yield curve also jumped substantially to 7.95 per cent.
In forward market today, premium for dollar remained weak due to sustained receiving from exporters.
The benchmark six-month forward premium payable in December moved down to 97.50-99.50 paise from 98-100 paise and the far-forward June 2019 contract declined to 244-246 paise from 246-248 paise yesterday.

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First Published: Aug 31 2018 | 7:30 PM IST

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