Rupee depreciates against US dollar

NEW DELHI: Concerns over downgrading of Brazil's rating to junk by Standard & Poor's and looming fears of a possible rate hike by the US Federal Reserve weighed heavy on the rupee, which declined 31 paise to 66.72 against the US dollar in early trade on Thursday.

The domestic currency had strengthened by 14 paise to settle at 66.41 against the US dollar on Tuesday amid persistent selling pressure from banks and exporters.

Earlier in the day, S&P’s cut Brazil’s rating to BB-plus, the highest junk rating, from BBB-minus.

The faster-than-anticipated downgrade from investment grade is likely to jolt Brazilian financial markets later in the day and will increase borrowing costs for the government and Brazilian companies. It may put more pressure on currencies of commodity-driven emerging markets.

“Nations highly leveraged to commodities will continue to face issues; may see credit rating readjustment for other Opec nations on lower crude prices," said Jonathan Barratt, chief investment officer at Sydney's Ayers Alliance.

The domestic currency has so far fared much better than their regional peers ever since China devalued the yuan or renminbi.

Following the yuan shock, the rupee has also lost ground and declined on a point by point basis by around 4 per cent, a survey by Care Ratings showed. Of the 17 currencies considered by the ratings firm, the euro and Hong Kong dollar have appreciated. Out of the remaining 15 currencies that have depreciated, five including those of Brazil, Indonesia, South Africa, Russia and Turkey, have declined more than the rupee (i.e. 4%).