Rupee dropped to two month low against US dollar

Indian rupee dropped to two and a half month low against the US dollar mirroring weakness in other emerging market currencies against the greenback. The partially convertible rupee closed at 63.10 after hitting an intra-day low at 63.30 per dollar.

“India’s fundamentals are much stronger than what they were in July (2013),” Mohan Shenoi, head - treasury at Kotak Mahindra Bank. “Rupee moved a bit in sympathy to what is happening in Argentina and Turkey. It is likely to trade in the range of 62.50-63.50 next 15 days.”

The rupee had hit 63.90 on November 13, 2013. It closed on Monday at 63.10 per US dollar, a fall of 41 paisa or 0.65 per cent from its previous close at 62.69 on last Friday.

Some emerging countries like Argentina and Turkey are going through political/economic turmoil and subsequently they have allowed 10-15 depreciation in their respective currency against the US dollar. Traders reacted to concerns emanating from those countries, which are widely perceived to be on the edge of a currency crisis.

The sensitive index – BSE crashed more than 400 points on Monday. But, the Economic Affairs Secretary – Arvind Mayaram tried to allay apprehensions.

" Current Account Deficit (CAD) is below $50 billion. Foreign exchange reserves are (at) all-time high. We have very strong fundamentals...I don't think that there is any cause of worry," he was quoted saying in New Delhi.

Moreover, the fear of US tapering again started haunting investors with the US Federal Reserve holding its routine FOMC meet on Wednesday. Markets expect it to unwind its monetary largesse by another USD 10 billion, which may chock money flows into emerging countries.

Since the beginning of third quantitative easing almost a year ago, US Fed kept pumping USD 85 billion into the system via bond buying programmes. Last December, it had decreased it by USD 10 billion.

“Markets are also expecting another $10 billion reduction,” said Krishnamoorthy Harihar, head - treasurer, at FirstRand Bank India. The rate of currency depreciate in India would not be sharper this time but remain range bound. “Rupee has good resistance at 63.50, which is also an attractive level to exporters to sell their (dollar) receivables.”

Those countries which have a CAD (current account deficit) issue, have seen their currencies taking a beating, said delaers. But, India, which has almost sorted out CAD or fiscal issues are fundamentally on a stronger footing.