Turkish crisis hits rupee; Rs 70/$ mark now in sight

Abhishek Goenka
IFA Global

The rupee extended its losses after opening at a record low of 69.47 against the dollar. In intra-day trade, it hit a fresh low of 69.62 against the greenback, tracking weakness in other emerging market currencies on concerns of a spill over from the Turkish crisis.

The Turkish Lira hit the 7.24 mark against the dollar and is trading 8 percent weaker compared to Friday’s close. On Friday, US increased tariffs on steel and aluminium imports from Turkey to 25 percent and 50 percent, respectively, citing a weakening Lira.

The tough rhetoric from Turkish President Recep Tayyip Erdoğan over the weekend, expressing willingness to stand up against US threats and finding newer trading partners and allies is making markets nervous. The Lira stabilised somewhat after the Turkish central bank governor announced plans to resurrect the economy.

The possibility of a contagion on account of an exposure to Turkish assets has caused widespread pessimism and dampened risk sentiment globally, especially in Europe. European banks have an $140 billion exposure to Turkish assets.

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Abhishek Goenka

Founder & CEO|IFA Global

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The likely range for the dollar-rupee is 69.23-69.70 with an upside bias. The psychological 70 mark is now in sight and could act as a magnet, especially after prolonged consolidation in the 68.30-69 range.

In wake of the currency’s weakness, the Reserve Bank of India may be less keen to intervene. It may do so just to curb volatility and desist speculators.

What should importers do?Importers are advised to cover their short term exposure on dips towards Rs 69.20-69.25/dollar levels as the market has given a breakout on the upside. Exporters are advised to wait a while before booking a profit, with a stop-loss at Rs 69/dollar levels. If their long term exposure is under covered, then they can look at buying a one-year forward contract on every uptick towards Rs 69.70/dollar levels.

Disclaimer: The author is Founder and CEO of IFA Global. The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.