Rupee crashes to fresh record low of 72.69, down 24 paise on higher crude prices, capital outflows and trade war concerns

Mumbai: The embattled rupee plummeted 24 paise against the US dollar to end at a new record low of 72.69, due to a rebound in crude oil prices and capital outflows amid intensifying global trade war concerns. The rupee had a positive start and touched a high of 72.25 versus the dollar in early morning deals. But, it suddenly collapsed to hit a fresh record low of 72.74. However, the swift RBI intervention led to some recovery. Any policy response other than the RBI’s intervention, will depend upon the strength of the sell-off in key emerging markets and contagion risk, currency dealers said. The rupee is the latest currency to be dragged down by fears that an escalating trade war could hurt global growth and severely affect Asian economies. The spillover from the emerging-market turmoil in the Argentina peso and Turkish lira is largely weighing on Asia currencies. [caption id=“attachment_5111611” align=“alignleft” width=“380”] Representative image.[/caption] Besides, a massive portfolio liquidation pressure from foreign investors and some political uncertainty about 2019 general elections have also been acting as a dampener on forex market sentiments, the dealers said. Foreign investors withdrew close to Rs 2,300 crore from the capital markets since Monday, according to provisional data. Surging global crude prices also added pressure point in Tuesday’s trade after the benchmark Brent breached the $78-mark once again. Crude prices surged as the US sanctions squeezed Iranian crude exports, resulting in tighter global supply despite efforts by Washington to get other producers to increase output. India’s benchmark 10-year sovereign yield jumped to end at a fresh four-year high of 8.18 percent. Meanwhile, the US dollar has been extending gains over the past week on the back of a strong jobs report and expectations of a rate hike from the Federal Reserve this month. Moreover, world central banks are preparing for a gradual withdrawal from accommodative monetary policies, largely impacting on the liquidity front. Given the backdrop of rising trade frictions and volatile global crude prices, the Indian unit might continue its free fall ahead of this week’s key event risk - industrial production data along with CPI and WPI inflation numbers, a forex dealer said. Currency speculators also play in this market to take advantage of any arbitrage opportunities between the onshore and the offshore market. The offshore rupee non-deliverable forwards (NDF) market has gained momentum in the midst of global turmoil, with the one-month and the three-month NDF hitting fresh lows. NDF market offers a platform for hedging and also speculative bets. At the inter-bank foreign exchange (forex) market, the rupee resumed higher at 72.30 from the overnight finish of 72.45 on the back of adequate dollar liquidity. After scaling a high of 72.25 in early trade, it quickly reversed the knee-jerk gains and tumbled to a historic low of 72.74, triggering central bank intervention. The local unit, finally settled day at 72.69, showing a loss of 24 paise, or 0.33 percent. The Financial Benchmarks India private limited (FBIL), meanwhile, fixed the reference rate for the dollar at 72.3227 and for the euro at 84.0771. In the cross-currency trade, the rupee also took a sharp slide against the Pound sterling to end at 94.63 per pound from 93.66, and remained weak against the Japanese yen to close at 65.29 per 100 yens compared with 65.21 on Monday. The home unit also fell back against the euro to end at 83.83 from 83.25 last Friday. The home unit also dropped against the euro to finish at 84.20 from 83.83 earlier. Against a basket of other currencies, the dollar index is higher at 95.28. In the forward market, the premium for dollar moved up due to sustained paying pressure from corporates. The benchmark six-month forward premium payable in January 2019 edged up to 124-126 paise from 123.50-125.50 paise and the far-forward July contract also rose to 282-284 paise from 278.75–280.75 paise.