Rupee ends at all-time low of 58.78/USD; Fed policy eyed

Rupee's slide against the US currency dollar continued today as Indian currency ended the trade at an all-time closing low of 57.78. Not only Indian rupee but currencies of other emerging markets were also battered ahead of Federal Open Market Committee meet scheduled tonight. 

"Fundamentally the rupee has absorbed most of the bad news in the economy in terms of the current account deficit (CAD) and the fiscal deficit and the inflation gap it has vis-à-vis its other trading partners. But around 59, it is kind of fairly valued," says CNBC-TV18's Latha Venkatesh. Below is the verbatim transcript of Latha's view on Indian currency.
The rupee really is now moving in concert with other emerging market currencies, so to take a call on how much more the rupee will fall, you have to take a call on the Federal Open Market Committees (FOMC’s) ultimate statement. You have to take a call on how risk assets will move thereafter.
It is a little premature to take call on that. You can say fundamentally that the rupee has absorbed most of the bad news in the economy in terms of the current account deficit (CAD) and the fiscal deficit and the inflation gap it has vis-à-vis its other trading partners. But around 59, it is kind of fairly valued. Also read: Rupee to remain under pressure; may touch 59/$: HDFC Bank
Now whatever overshoot happens will depend on the risk perception in the emerging markets currencies.
Today, other currencies like the Malaysian ringgit were also affected. One currency that fell even more than the rupee and is still trading is the South African rand, which is on a 24-hour basis down about two percent. Brazilian currency the ‘real’ will start trading only hereafter and we will know what ravages it faces. These are all currencies in the same class, which are prone to high urrent account deficit (CAD).
How do the Foreign Institutional Investors (FIIs) react? The key guys who were buying dollars were FIIs who have equity exposure as well and who have kept them unhedged and now find a possible attack on the rupee and therefore are buying dollars to hedge their currency exposures.
Apparently, the Reserve Bank was there around noon when the rupee went to 58.60, it is very difficult to confirm that because at that point after reaching 58.60, the rupee appreciated to 58.40. But in the last two hours of trade there was a continuous erosion of the value across the emerging markets, across risk asset class and the rupee took a tumble and closed about 1.6 percent lower.
It is possible that there will be more of declines because of a rise in US yields. That is a sign of a higher risk.  Clearly if there is too much of a fall in one day, the Reserve Bank will be there and there will be of course other measures probably curbing the amount of long positions that banks can hold overnight.
We have seen these curbs in the past, and more such steps can always be announced and in any case the central government is also looking at increasing FDI caps.