BLBG: Indian Rupee Weakens on Concern Risk Aversion Will Spur Outflow
India’s rupee fell to the lowest level in more than a week on speculation declines in global equities will deter investors from buying riskier emerging-market assets.
The rupee pared this month’s gain to 4.5 percent, the best among the region’s 10-most active currencies, as traders in the forwards market added to bets for the exchange rate to weaken. Investors sought the relative safety of the dollar as rising bond yields in the U.S. threaten to thwart Federal Reserve efforts to reduce borrowing costs, stimulate spending and push the economy out of recession.
“Overseas equities are weaker and the dollar is broadly stronger,” indicating an increase in risk aversion, said Ritwij Mahant, a Mumbai-based currency trader at IndusInd Bank Ltd. “The rupee’s weakness also follows the trend in the non- deliverable forward market.”
The rupee dropped 0.5 percent to 47.925 per dollar as of 10:35 a.m. in Mumbai, according to data compiled by Bloomberg. It fell as low as 48.09, the weakest since May 18.
Offshore forwards contracts indicate traders predict the rupee will fall to 48.15 in a month, compared with expectations of 47.86 yesterday. Forwards are agreements in which assets are bought and sold at current prices for future delivery. Non- deliverable contracts are settled in dollars rather than the local currency.
Dollar Rises
The ICE’s Dollar Index, which tracks the greenback against the euro, the yen, the British pound, the Canadian dollar, Swiss franc and Sweden’s krona, climbed 0.3 percent to 81.01, taking the gain so far this week to 1.3 percent.
The difference in yield between two- and 10-year U.S. Treasury notes widened to a record yesterday due to rising sales of securities to fund the government’s stimulus spending and bank bailouts. Yields on 10-year notes climbed more than 100 basis points since Fed officials said in March they would buy up to $300 billion of U.S. debt over six months to drive down rates.
The SGX CNX Nifty Index futures of Indian shares traded in Singapore for May delivery dropped as much as 0.6 percent. The MSCI Asia Pacific Index of regional equities lost 0.7 percent
