What fresh swings in the forex market really mean

MUMBAI: The rupee turned volatile on Monday morning losing nearly half a percent value to the dollar as investors rushed to shore up the greenback amid fears of US rate hike and a weakening Chinese yuan that dents investor sentiment.

At 11.35 hours, the rupee was trading at 67.34/$, 31 paisa weaker than its last Friday closing at 67.03.

It opened with a swing of 18 paise at 68.21.
Equity and debt markets remain almost placid so far on Monday.

"There is a collective dollar demand in the market, driven by combined facts," Keta Kurkute, VP, forex risk advisory, at Mecklai Financial. "The latest statement from Federal Reserve has clearly led people to believe that US may hike rates within one or two months."

"Moreover, some importers are also seen buying dollar to meet their month-end offshore payments," she said.

US market remains closed today adding to some cash dollar shortages, dealers said.

The US dollar index hit a two-month high after Federal Reserve chair hinted at rate hike in coming months. Her comments have also followed a chorus of policymakers talking about rate hike possibility in the past few days.

A rate increase in US would drive global investors pulling out funds from emerging markets including India, at least for the time being, as they seek safety of safe heaven assets.

The yuan is showing fresh sign of weakness against the dollar as the country struggles to revive its exporter-driven economy that faces contraction.

"A hawkish Fed making rumblings about a July hike is adding fuel to fire to an already overvalued Yuan which slowly losing ground due to outflows and risk of monetary policy easing in China, said Anindya Banerjee, currency analyst from Kotak Securities..

"A spillover of the Yuan weakness, which is trading less than a percent away from fresh seven-year low against the USD, is causing Rupee to depreciate against USD," he said.