Rupee near all-time low on oil scare, trade war worries

The embattled rupee on

Wednesday plunged by 37 paise or 0.54 per cent, to settle at a 19-month low of 68.61 against the US dollar as growing crude oil prices fanned fears of a widening current account deficit and a spike in inflation.

This is the lowest closing for home currency since November 24, 2016, when it had settled at 68.73.

The Indian unit caved in to a fresh intraday low of 68.68 against the dollar in afternoon deals, prompting the central bank to intervene.

Investors grew more nervous that higher crude oil prices will worsen India's current account deficit and fuel inflation.

After a short break, crude oil prices rebounded after the US asked its allies to end all imports of Iranian oil by a November deadline. Concerns over supply disruptions in Libya and Canada also flared up the prices.

Brent crude futures was trading up 0.5 per cent at $76.78 a barrel in early Asian trade.

The currency market was nervous after RBI painted a gloomy picture of the banking sector in its bi-annual financial stability report.

Higher inflation, concerns over fiscal deficit and hawkish stance from the RBI have driven up bond yields, hurting bond prices. The 10-year benchmark bond yield shot-up to 7.87 per cent from 7.83 per cent.

Currency traders were also worried about the future of global trade against the grim backdrop of an escalating trade rhetoric between the US and China.

A massive selloff in domestic equities further added pressure fearing heavy capital outflows.

The rupee, which strengthened 5.96 per cent against the US dollar last year, has been on a general downtrend since the start of 2018. It has lost nearly 7 per cent this year so far.