LM:Rupee stays weak as Fed concerns, oil demand weigh
Mumbai: The rupee remained weak against the dollar on Tuesday, weighed down by renewed fears that the US Federal Reserve will soon end its $85 billion bond-buying programme and also as dealers bought dollars expecting higher demand from oil companies.
At 2.45pm, the Indian currency was trading at an eight-week low of 63.6450 to a dollar, down 0.64% from its previous close of 63.2375. The partially convertible currency opened at 63.4350 a dollar and touched a low of 63.68.
The rupee is bearing the brunt of the changed sentiment towards the dollar in the last few days following positive data from the US, according to Ashish Parthasarthy, treasurer at HDFC Bank Ltd.
The US added 204,000 jobs in October, much higher than the consensus estimates of a 80,000. The better-than-expected non-farm payrolls data have supported views that the Fed’s bond-buying programme will end sooner than later, which strengthened the dollar against emerging market currencies, including the rupee.
Fed policy makers will pare the monthly pace of bond-buying to $70 billion at their 18-19 March meeting, according to the median estimate of 32 economists in a Bloomberg News survey on 8 November. An 17-18 October survey of 40 economists also forecast a reduction to $70 billion in March.
However, Parthasarthy said a freefall in the rupee is unlikely. “We are in a much better position both in terms of the balance of payments as well as forex reserves compared to a couple of months ago,” Parthasarthy said. “We will not see a repeat of the free fall we saw in June or July.”
On Tuesday, the dollar was trading higher against major Asian currencies except the South Korean won and the Thailand baht which were slightly higher.
Demand for dollars was also back from the oil companies. Last week, economic affairs secretary Arvind Mayaram said that state-run oil companies have started buying 30-40% of their daily dollar demand in the forex market instead of the special window provided by the Reserve Bank of India (RBI).
Parthasarthy, however, said the rupee will not stay below 64 per dollar for at least till the end of 2013.
Since January, the rupee has weakened 13.61% and has lost the second most after Indonesian Rupiah among Asian currencies.
The dollar index, which measures the US currency’s strength against major currencies, was trading at 81.340, up 0.31% from the previous close of 81.091.
The rise in the US bond yield after the US jobs data has also pushed up the local 10-year bond. The benchmark 10-year bond was trading at 9.03%, up seven basis points from previous close of 8.95%. It opened at 9% and touched a high of 9.07%. One basis point is one-hundredth of a percentage point.
India’s benchmark Sensex was trading at 20,404.92 points, down 0.42%, or 86.04 points, from its previous close.
The overnight call money rate was trading at 8.75%, unchanged from the previous close.
