Mumbai: The Indian rupee strengthened marginally against the US dollar on Monday following gains in its Asian peers, but remaining on track for the worst performance in Asia in eight years. At 9.15am, the rupee was trading at 69.81 a dollar, up 0.18% from previous close. The currency opened at 69.79. So far this year, the rupee was down nearly 9% and remained Asia’s worst performing currency. Last time the rupee was the weakest in Asia in 2011, falling nearly 15.8%. The 10-year gilt yield was trading at 7.372% from its previous close of 7.385%. Bond yields and prices move in opposite directions. Foreign investors have pulled out over $11 billion from local equity and debt market, year to date.
Since start of 2011 till date, the rupee has depreciated 36.2% and has been weakening every year, except 2017. The rupee appreciated nearly 6.34% in 2017, its biggest yearly jump since 2007.
The rupee depreciation is more or less in line with the trend across emerging market (EM) currencies. Most EM currencies have depreciated over the eight-year period between 2011 and 2018 end. The Indonesian rupiah, depreciated around 38%, Japanese yen slumped 26.64%, Malaysian ringgit fell 25.48% while the Philippine peso dropped 16.7%. Among Asian EM currencies, excluding China, the Thai baht (down 7.64%) and the Taiwanese dollar (down 4.43%) have seen the least depreciation.
Among the Brics (Brazil, Russia, India, China and South Africa) nations, currencies of Brazil (down 57.32%), South Africa (down 54.60%) and Russia (down 56%) have seen a steep fall. The Chinese currency, which has been closely managed, is excluded from the comparison.
Over these eight years, the Dollar Index, which measures the dollar against a basket of trade weighted currencies, has gained 22.4%. Much of this appreciation came in 2014 and 2015 when the index gained 12.8% and 9.26%, respectively.
Brokerage firm Choice Broking expects that the rupee will be in the range of 70-73 in 2019.
Sajal Gupta, Head Forex & Rates, Edelweiss Securities on the outlook of Rupee says “US-China trade spat will continue to linger on Asian FX outlook, while Brexit developments and outcome by March 2019 could add another layer of (un)certainty in global FX space and risk sentiments. INR will not be insulated from any of the global idiosyncrasies and will follow EMFX suit” .
“That said, if markets perceive these risks well and behave sanely, we should see mild dollar weakness in 1HCY19 which should be largely EMFX positive. Separately, INR volatility could emerge ahead of the election-led event risk if opinion polls start hinting at a mixed mandate, and with investors wary on taking heavy INR assets’ positioning ahead of the union elections”, Gupta added.
Joseph Thomas, Head Research-Emkay Wealth Management expects that the crude oil, policy stance by the Reserve Bank of India, borrowing programme, inflation trajectory and outcome of general election would be an important indicator for Rupee and bond markets next year.
The 10-year government bond yield eased by just 6 basis points in 2018. It rose nearly 70 basis points between January and September, but it softened by 76 basis points in the last three months on the back of easing worries of fiscal slippage and lower inflation after decline in crude prices. So far this year, oil is down 19%. The crude prices are currently down 34% from their 2018 peak of $ 86.29 per barrel seen on 3 October.
Source: livemint.com