Rupee will outperform both EM, global currencies

Indian rupee weakened for the second straight day on the back of strong dollar demand. The currency slipped to its lowest level in a month and closed the day at 60.94/USD. 

The weakness is now two days old. The rupee fell half a percent yesterday and a further near half a percent Wednesday before there was some dollar selling. This is largely because of the global dollar strength.

Market has seen dollar index from USD 82 to USD 84. It was ignored for a while by the rupee and for the better part of the last two weeks it reached a level where it started affecting emerging market currencies. The rupee’s fall is just keeping up with other emerging market currencies, largely a result of global dollar strength.

It was largely foreign institutional investors’ buying hedges. They were buying the shares and debt instruments in India without even taking the cover because the rupee was expected to be strong but when the sharp fall of half a percent fall came yesterday, they came in and bought hedges, which indicates buying more dollars that created its own demand. But above 61 to the dollar there was good supply of dollars from exporters and that's why the rupee ended off the days lows.