Moneycontrol
May 18, 2017 05:34 PM IST |

Rupee falls to 64.85 to the dollar on losses in domestic equities, other EM currencies

The Indian rupee on Thursday fell by nearly 70 paise (1.1 percent) to close at 64.85 to the dollar, tracking losses in domestic equities and other emerging market currencies.

Rupee falls to 64.85 to the dollar on losses in domestic equities, other EM currencies

Pranay Lakshminarasimhan

Moneycontrol News

The Indian rupee on Thursday fell by nearly 70 paise (1.1 percent) to close at 64.85 to the dollar, tracking losses in domestic equities and other emerging market currencies.

The rupee was sold heavily by custodian banks, likely acting on behalf of their foreign portfolio investor clientele. FPIs were selling emerging market assets throughout the session as the political crises facing the Donald Trump administration led to a risk-off sentiment across the globe, dealers said.

US President Donald Trump’s term in office is currently undergoing a crisis after a memo written by former FBI director James Comey, which surfaced on Tuesday, revealed that Trump had asked him to drop an investigation of erstwhile National Security Advisor Michael Flynn.

As a result, investors flocked to low-yielding currencies like the euro, the pound, the dollar and the yen, all of which appreciated against the rupee. Emerging market currencies like the South African rand, the Korean won, the Turkish lira, the Mexican peso and the Russian ruble, all fell 0.6 percent to 2.6 percent.

“This is typical carry-trade unwinding,” said Anindya Banerjee of Kotak Securities. “The market keeps moving up as investors are borrowing in the low-yielding currencies and buying assets in the higher-yielding economies to gain from higher carry. The trade gets, too, crowded and one fine day, the risk appears from somewhere and there is a sell-off in the stock market, which in turn feeds the unwind.”

A dealer with a state-owned bank said that from a long-term perspective, now would be a good time to go long on the rupee. “A massive sell-off in the equity market is not likely at this time, and that is exactly what the rupee would need to depreciate beyond 65. We are likely to see some weakness for the next couple of sessions or so, but the rupee should bounce back after that,” he said.
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