The rupee suffered yet another blow on Monday, by falling 34 paise to end at a near five-year low of 68.80 against the US dollar. The fall in the value of the rupee against the greenback came in the midst of weak global trends and concerns on the macroeconomic front, reported news agency Press Trust of India. The level of 68.80 marked the weakest closing of the rupee against the US currency since August 28, 2013. During Monday's session, the rupee traded in the range of 68.81 and 68.33 against the greenback.
The rupee had tumbled below 69-mark for the first time ever on Thursday and hit a life-time low of 69.10. Asia's third-largest economy is facing severe macro challenges against the grim backdrop of soaring global crude prices, which is most likely to disrupt government's fiscal math and poses additional risks to inflation forecast. Trade worries were at the heart of currency market weakness, say analysts.
"The rupee has been one of the worst performing currencies among peers... Against the USD, it has depreciated by 6.6 per cent in calendar year 2018 and 8 per cent year to date. Adding to our concern is the increasingly hawkish Federal Reserve, which has now initiated a reversal of the Quantitative Easing (QE) - marking an end to global easy money," Karan Mehrishi, lead economist at Acuite ratings and research, told Press Trust of India.
"With volatile commodity prices playing havoc with the import bill, we reckon that the situation will worsen at the trade front as well. We are expecting the Current Account Deficit to peg at 2.2 per cent of GDP (30 bps higher than previous year). Our estimate for the rupee relative performance to the USD suggests an upper bound of 70 by Q3 FY19. An improvement can be foreseen in calendar year 2019," he added.
Here are the key factors impacting rupee against US dollar:
1. Crude oil: Saudi Arabia has increased its oil production by 700,000 bpd to 10.70 million bpd, very close to its highest ever production of 10.72 million bpd from November 2016. Brent crude futures, an international benchmark, is trading sharply down at $78.56 a barrel, in early Asian trade. It had gained more than 5 per cent last week. Though, crude prices were down little on prospects of increased Saudi supply after US President Donald Trump called on OPEC to produce more oil.
2. Fed hikes: Dollar strengthened broadly in Asian session despite an escalating trade tensions between US and China as market is pricing on Fed rate path is largely unchanged.
The Federal Reserve is on course for having two more hikes this year. The US is set to impose fresh tariffs on $34 billion worth of Chinese goods on Friday and the world's second-largest economy is on course to retaliate.
3. FPI outflows: Meanwhile, overseas investors and funds pulled out nearly Rs 48,000 crore from Indian capital markets in the first six months of 2018, making it the steepest outflow in a decade due to deteriorating domestic macro environment.
4. Weak FDI: Foreign direct investment (FDI) in India seems to be petering out with the inflows growth rate recording a five-year low of 3 per cent to $44.85 billion in 2017-18, the latest data of the Department of Industrial Policy and Promotion (DIPP) showed.
5. Falling forex: In the meantime, country's foreign exchange reserves fell for a second week to $407.82 billion, the RBI said. Domestic equities fell back after a weekend rally with cyclical sectors including mining, power and infrastructure stocks succumbing to profit-taking. Most Asian stocks also took a beating.
(With PTI Inputs)