Millennium Post

Re dips another 90p per $ ahead of key Fed meet

Resuming its downfall, the rupee on Tuesday sank by a whopping 90 paise to all-time closing low of 58.77 on massive dollar buying by banks and importers as forex markets became jittery ahead of Fed's decision on continuing monetary stimulus.

Capital outflows also affected the market sentiment with FIIs offloading shares worth over Rs 750 crore in two days, amid talks of continuing sell-off in debt as well. Since May-end, FIIs have sold around $5 billion debt securities.
'Forex markets were nervous ahead of the Fed meeting. More than demand and supply, the sentiment was very poor. The decision of whether Fed will taper bond-buying will only be known on Wednesday...Its not right time for RBI to intervene as the trend is bearish,' said Mohan Shenoi, President - Group Treasury & Global Markets, Kotak Mahindra Bank.

Rupee resumed lower at 58.25 per dollar as against the last closing level of 57.87 per dollar at the Interbank Foreign Exchange Market. It dropped further to a low of 58.81 on concern that US Federal Reserve will indicate a reduction in asset purchases that boosted inflows to emerging markets. Rupee finally ended at 58.77 per dollar, showing a loss of 90 paise or 1.56 per cent. On June 11, the rupee hit its all-time low of 58.98/99 intra-day but closed at 58.39. Local factors like poor trade data also affected rupee.

 'Depreciation is mainly due to concerns of high currrent current account deficit (CAD). Also, widening trade deficit data for May had also impacted the local currency today,' said Corporation Bank General Manager P Paramasivam, who looks after treasury operations.

In global market, dollar gained against major rivals on prospects of a cut in the country's interest rate. In London, dollar rose in early trade and was trading above recent two-month lows against the yen, with further gains dependent on US Fed guidance monetary stimulus to prop up the economy. Participants were cautious as global markets awaited decisions from the US Fed, whose two-day policy meet would start Tuesday. Investors were looking for signals if Fed will taper $85 billion in monthly bond purchases after US economy showed some recovery in recent weeks.
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