Rupee nears record low on rising crude oil prices, trade war

MUMBAI: The rupee closed near its all-time low on Wednesday over concerns that higher crude oil prices will worsen India’s current account deficit and accelerate inflation. Rupee, along with other Asian currencies, have come under pressure in the last few sessions after the fall in Chinese yuan due to escalation of trade war between the US and China. The currency closed at 68.63 a dollar, just 0.28% away from its record closing low, and down 0.55% from its previous close of 68.26. The rupee opened at 68.42 and touched a 19-month low of 68.67, a level last seen on 30 November 2016.

The rupee hit an all-time closing low of 68.825 on August 28, 2013. The all-time intraday low stands at 68.8625 seen on November 24, 2016. So far this year, the rupee remains the worst performing currency in Asia, falling 6.9%, followed by the Philippine peso and Indonesian rupiah, which are down 6.7% and 4.3% respectively. The Chinese yuan depreciated has 1.5%.

“The recent gap-up in rupee momentum is largely driven by the broader dollar strength—as the latter’s rate differentials continue to widen with its other G3 peers. Undeniably, adding to the bearish momentum not only in the INR but also AXJ pack, is the US-China trade dispute which investors fret could spillover and jeopardise global growth momentum”, said Radhika Rao, economist at DBS Bank.

“The resultant risk-off mood has seemingly set-off a vicious loop—currency weakness is a thorn on the side of foreign portfolio investors, with outflows here triggering further rupee weakness. Today, equities have also seemed to have joined the debt markets on their way south. Given the risks also building up on the domestic macro end, we retain our inhouse call for the rupee to weaken towards 69.50 by year-end”, Rao added.

Crude oil prices jumped after the US pressed its allies to end all imports of Iranian oil by a November deadline and said it didn’t want to offer any extensions. Moreover, continued selling by foreign investors in local equity and debt markets due to change in the nation’s macroeconomic environment dampened sentiment. So far this year, foreign investors have sold a combined $7 billion in equity and debt markets.

Benchmark Sensex index fell 0.77% or 272.93 points to 35217.11 on Wednesday. Since the start of this year, it has gained 3.4%.

SO FAR THIS YEAR, THE RUPEE REMAINS THE WORST PERFORMING CURRENCY IN ASIA