The rupee staged an impressive comeback on Wednesday after plunging to a fresh three-week low and ended with a modest loss of 3 paise at 64.15 against the US dollar. In intra-day trade, it fell against the US dollar as strong US retail data increased chances of Federal Reserve increasing its key rate this year. During intraday trade on Wednesday the rupee fell to 64.32 against the dollar, a level which was last seen on July 26. The dollar rallied to its highest level against a basket of major currencies in nearly three weeks. However, higher domestic equity markets helped support rupee at lower levels. The Sensex rose over 322 points to 31,771, led by buying in IT, FMCG and banking stocks. Forex market is shut on Thursday.
Here are five things to know to about rupee's decline:
1) US retail sales rose the most in seven months in July as consumers spent more on 10 of 13 retails sectors. Further, upward revisions to sales for both May and June countered concerns that consumption had entered a downtrend and lifted the outlook for economic growth. Investors reacted by narrowing odds on the Fed tightening again this year and sent two-year Treasury yields up to 1.36 percent, from 1.29 percent on Friday.
2) Foreign investors, who have been a major contributor to the stock market rally this year so far, have turned net sellers of Indian equities this month so far. They have sold shares worth nearly Rs 4,300 crore in August. Geo-political concerns have impacted global equity markets and also hit foreign inflows into emerging markets.
3) After surging nearly 7 per cent against the dollar this year, the rupee has witnessed some selloff this month as investors rushed to buy safe heaven assets like dollar and gold on geopolitical tensions.
5) "The rupee will largely be guided by foreign portfolio investment (FPI) movements in short run which will also affect the stock market. Debt limits of FPIs are being reached while equity flows are whimsical. Hence volatility will continue for next couple of months before the rupee declines on a permanent basis towards the 65-65.5 mark. From there on the trade numbers will matter a lot," said Madan Sabnavis, chief economist at Care Ratings.
(With Agency Inputs)