Rupee rallies to two-month high, jumps 34 paise to close below 72-mark

Continuing its recovery momentum, the rupee vaulted 34 paise to close at a two-month high of 71.97 against the US dollar Thursday on robust foreign fund inflows amid low crude oil prices.
Dealers said the strength in the rupee was also supported by increased selling of the greenback by exporters and banks.

Globally, dollar and yen gained on Brexit-induced safe-haven buying.
The British pound crashed more than 1.5 per cent after four UK ministers resigned over Prime Minister Theresa May's Brexit deal. The euro, however, climbed to a two-week high.
At the interbank forex market, the rupee opened firm at 72.04 and rose further to 71.87 per US dollar.
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It touched a low of 72.18, before finally finishing at 71.97, up by 34 paise.
The last time rupee breached the 72-level was on September 14, when it had closed at 71.84.
The rupee had gained 36 paise to end at 72.31 against the US dollar Wednesday. The local unit has now gained 92 paise, or 1.27 per cent, in three sessions.
"Drop in US 10-yr bond yield followed by gradual pick up in FII inflow to domestic market and slide in oil prices eased the concerns of liquidity," said Vinod Nair, Head of Research, Geojit Financial Services.
Brent crude, the international oil benchmark, was trading marginally higher at $66.63 per barrel.
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Meanwhile, foreign institutional investors (FIIs) bought shares worth a net Rs 20.4306 billion Thursday, as per provisional data.
The BSE benchmark Sensex ended 119 points higher at 35,260.54 while the broader Nifty went past the 10,600 mark on positive investor sentiment.

Rupee retreats to hit a record closing low of 70.16 against US dollar

The Indian rupee today retreated sharply to hit a record closing low of 70.16 against the US dollar, plunging by 25 paise despite a huge rally in equities amid easing worries over near-term monetary policy tightening by the US Fed.
Indian equity benchmarks Sensex and Nifty today scaled new peaks and logged their best single-day gains in nearly five months, tracking positive global cues as investors took heart from the US Federal Reserve's "gradual approach" to raising interest rates.

On August 16, the domestic currency had tumbled to a historic intra-day low of 70.40 before closing at a life-time low of 70.15 per dollar.
The rupee has been hit by a range of factors including swelling current account deficit, surging global crude prices and lukewarm export growth. Besides, US trade protectionism has also contributed to excess volatility in the forex market.
The benchmark Brent crude surpassed the significant USD 75-mark a barrel once again on re-emergence of a supply shock.
Domestic forex market fluctuated wildly during the trade with the rupee climbing to a fresh one-week high of 69.65 in early trade before surrendering the gains.
The rupee has been depreciating steadily during the past few months largely reflecting investors' concerns about India's widening trade and current account deficits.
Country's current account deficit has been swollen to hit a 62-month high of USD 18 billion in July.
The rupee is down over 9 per cent so far this year, making it the worst-performing currency in Asia.
Extending its recovery momentum, the rupee today opened higher at 69.75 from weekend close of 69.91 at the inter-bank foreign exchange (forex) market.
It gained further ground to hit a session high of 69.65 in early trade due to sustained dollar unwinding and tracking a rally in most Asian peers.
However, the rally did not last, with the rupee succumbing to heavy dollar pressure, taking a sharp reversal in afternoon deals to hit a low of 70.20 before ending at a new closing low of 70.16, showing a loss of 25 paise, or 0.36 per cent.
The rupee had posted broad gains in weekend trade to close below 70-mark.
The Financial Benchmarks India private limited (FBIL), meanwhile, fixed the reference rate for the dollar at 70.0366 and for the euro at 81.3032.
Meanwhile, India's foreign exchange reserves fell by USD 33.2 million to USD 400.847 billion in the week to August 17 mainly due to fall in foreign currency assets, according to RBI data.
Indian equities, however, closed at record highs taking comfort from a powerful global stocks rally and also supported by blockbuster corporate earnings.
The BSE Sensex today shot up over 442 points to close at 38,694.11 and the broader NSE Nifty finished at 11,691.95, surging 134 points.
World stock markets also rose to their highest level in more than two weeks following reassuring comments from the US Federal Reserve chief that the US central bank was sticking with its strategy of gradual rate hikes to protect economic growth.
In the meantime, foreign investors and funds pumped in a little over Rs 6,700 crore into the capital markets so far this month.
On the energy front, crude prices pulled back modestly on growing concerns the US-China trade dispute will erode global economic growth, although fresh American sanctions against Iran's oil export limited the fall.
International Brent crude oil futures were at USD 75.49 per barrel in early Asian trade.
The 10-year benchmark bond yield also gained 2 bps to settle at 7.89 per cent.
Globally, the US dollar is trading lower against its major trading rivals as a much-anticipated speech from Fed Chair Jerome Powell at the Jackson Hole symposium stuck to familiar themes, leaving the status quo rate hike outlook intact.
Against a basket of other currencies, the dollar index is down at 94.94.
In the cross currency trade, the rupee also fell back against the British pound to end at 90.19 per pound from 89.86 and drifted against the euro to finish at 81.53 as compared to 80.98 earlier.
It too dropped against the Japanese yen to end at 63.16 per 100 yens from 62.78.
Elsewhere, mild dollar's weakness largely helped the British pound and the euro to bounce off from an early slide trade higher against the US dollar.
In forward market today, premium for dollar declined owing to mild receiving from exporters.
The benchmark six-month forward premium payable in December moved down to 102.50-104.50 paise from 104-106 paise and the far-forward June 2019 contract eased to 252-254 paise from 253-255 paise last Friday.

'Dollar to stay bullish until next month, Re may hit 70.3 in Jul-Sep qtr'

The US dollar is expected to remain bullish until middle of next month, and equity and bond outflows from emerging markets are also likely to stay strong, says a Morgan Stanley report.
The global financial services major is "neutral" on the rupee and forecasts it at 70.3 per US dollar in the third quarter of this year (July-September).

The rupee has been among the worst-performing currencies against the dollar compared with its peers so far this year and breached the 69-mark against the US dollar amid multiple headwinds, including global uncertainties and concerns over inflation.
The global brokerage further said that oil prices are expected to fall as global oil supply increases and this should provide a "tailwind for rupee and moderate the RBI's concern about inflation accelerating".
Besides, over the medium term, a rate hike by the Reserve Bank will ease inflationary pressure and support rupee valuations, the report noted.
ALSO READ: FPIs extend selling; pull out Rs 20 bn in July on fuel prices, weak rupee
"In the near term, as we expect US dollar to remain strong until mid-August and equity and bond outflows from emerging market to also stay strong," Morgan Stanley said in a research note and added that "we remain neutral on the rupee".
On Reserve Bank's policy stance, Morgan Stanley expects a rate hike at the August review meeting.
In June, the Reserve Bank of India had upped its retail inflation projection by 0.3 per cent and kept the policy stance in the neutral zone, even as it hiked the key rate by 0.25 per cent to 6.25 per cent.
The government has mandated the Reserve Bank to keep inflation at 4 per cent, with a margin of 2 per cent on either side.
The Monetary Policy Committee (MPC) will begin its three-day meeting on July 30 and announce its decision on the third bi-monthly policy of the current fiscal on August 1.

Amid oil price hike and dollar strength, rupee may hit 70 mark this week

Continued strengthening of the US dollar, lack of foreign investment inflows and concerns over rising oil prices are likely to keep the rupee under pressure and push it down to the 70 mark this week, said bankers.
They added 69.30 remains a crucial level for the domestic currency, which if breached, could further plumb down to the 70 mark against the dollar.

The Reserve Bank of India (RBI), however, will not be comfortable with the currency touching 70 and would strongly defend the same, according to them.
The rupee had touched an all-time low of 69.10 against the dollar on June 28. It closed at a lifetime low 68.95 on Thursday and 68.87 on Friday.
"Concerns over widening current account deficit due to higher crude prices and demand for dollar from oil companies and general importers is impacting the rupee. It may briefly touch the 70 mark this week but would not remain there," said a senior bank official.
Those companies who have to repay their external commercial borrowing (ECB) debt are also stocking up the US currency, a bank treasurer said.
"The RBI won't allow the rupee to fall below 69.30. If it breaches this level, the rupee will touch the 70 level in no time," said another banker.
The apex bank has always stated that it does not target any level of the domestic currency but intervenes in the foreign exchange (forex) market to check its volatility.
The forex reserves at $406.058 billion as of June 29, gives RBI enough comfort to intervene in the forex market.
Analysts said trade war between China and the US is putting pressure on all the Asian currencies, but rupee is the worst hit so far.
Foreign portfolio inflows into the domestic equity market has also come down due to the worries over US-China trade war, said another banker.
According to a report by Bank of America Merrill Lynch (BofAML), RBI rate hikes often hurt the rupee.
The rupee has depreciated 1.9 per cent since the RBI's June 6 repo rate hike, with $2 billion of FPI outflows, it had said in the report.
The brokerage said delay in FPI flows till, say December, may drive the rupee beyond 70 against the dollar and the RBI may issue NRI bonds.
"We think the RBI may issue NRI bonds to raise $30-35 billion to comfort the forex market, if FPI flows do not revive by the December quarter," BofAML had said.
If lack of FPI flows force the central bank to sell $20 billion, it would have to do open market operations (OMOs) worth $50 billion to contain lending rate hikes, the report had said.

Why the falling rupee failed to arrest a 7-month decline in apparel exports

Despite rupee depreciating against the greenback by almost 6 per cent in recent months to trade around Rs 68 per US dollar, India's apparel exports have not benefited from the trend, resulting in a 22.76 per cent fall for the month of April in dollar terms, sliding for the seventh consecutive month.
April 2017 saw ready-made garment (RMG) exports worth $1.747 billion, whereas the number declined by 22.76 per cent to $1.349 billion in the same month this year.

Apparently, RMG exports have fallen for the seventh consecutive month since October 2017, a result of Goods and Services Tax (GST) rendering Indian exporters uncompetitive as the new regime is not conducive for exports.
In the new regime, exporters have seen the cost of working capital rising and are experiencing fund crunch due to delays in the refund of taxes paid.
Low rupee needed for a few months
Rahul Mehta, President, Clothing Manufacturers Association of India said, “If Re remains at 68/69 levels for the next few months, it can offset the loss of Duty Drawback to some extent and may see a growth of three-to-five per cent.”
Exporters have said that while consumption in the international market is growing at around one to two per cent, competition is increasing too, as the business sees new entrants like Myanmar and Ethiopia. Competitors’ currencies are also depreciating, but they don’t have problems that Indian exporters do.
Falling production of apparels
Fall in apparel exports has led to a decline in production. According to the latest IIP figures, quoted by the Apparel Export Promotion Council (AEPC), India's apparel production fell 18.6 per cent in the month of March and saw a decline of 11 per cent for the period 2017-18.
March saw the eleventh straight monthly decline in apparel production.
"Last year (2017-18), the industry witnessed strong growth, but the continued backlog in GST and RoSL (refund of state levies) is affecting the sentiments. We would like the government to address the issue at the earliest, so as to reverse the trend of stagnating exports," said HKL Magu, chairman of AEPC.
Other costs also high
Best Corporation caters to global brands including Mothercare. Its managing director R Rajkumar said that apart from the delay in refund of levies and reduction in drawback, "Availability of manpower is also a big concern in all the existing textile centers and productivity is low due to huge labour turnover."
Apart from these, high costs of raw material and labour also put pressure, according to R S Jalan, managing director of GHCL. He said, "All these put together makes Indian exports at least 10-12 per cent costlier than competing countries. Ususal margins have been in the range of five per cent only, and hence, high cost is hurting both the topline and the bottomline."
Led by AEPC, the apparel exporters have urged the Centre to look at schemes to boost exports, besides looking at labour laws, as their protection is directly linked with productivity, in which India is far behind peers like Vietnam and Bangladesh.
Further, Ashok G Rajani, former Chairman of AEPC stated that it was disappointing that the Government was not looking at this sector seriously or helping, despite the fact that textile is one of the largest employment sectors in the country. "Every $1 billion of additional business can create 700,000 jobs. But, after the implementation of GST, withdrawal of duty drawback, delay in refund and lack of incentives to the sector are resulting in units to shutting shop," he said.
Meanwhile, an exporter from Tirupur, the knitwear hub of India, said that while India's apparel exports growth dipped, competing countries like Bangladesh and Vietnam are growing at around five to ten per cent.
The price difference between Indian and Bangladeshi products is around 20 per cent. Vietnam has a cost advantage of around 10 per cent, while also having increased its production as more Chinese and Taiwanese players have set up their factories in the country.
According to Tirupur-based exporters, those operating in niche areas and exporting premium products have been able to survive.

Rupee hits 7-week low of 64.24, tumbles 17 paise ahead of RBI policy

Unnerved by mayhem in the equity markets and heightened global currency volatility, the rupee on Tuesday took a hefty knock by falling 17 paise to end at a fresh seven-week low of 64.24 against the US dollar ahead of the RBI monetary policy outcome tomorrow.
Frantic dollar demand from importers and banks in the midst of fresh foreign fund outflows predominantly weighed on the forex sentiment.
Stretching the slide for the fourth straight day, the home currency has depreciated by a staggering 66 paise in these four days.
The Indian currency hit a low of 64.40 intra-day before staging a recovery in line with local equities.
However, abundant forex reserves in the face of robust foreign direct and institutional investment flows along with a steep fall in global crude prices largely averted any major upset.
The rupee resumed the day with a gap-down at 64.35 from Monday's close of 64.07 at the Interbank Foreign Exchange (forex) market.
It kept descending associated with huge market volatility and hit a fresh low of 64.40 in mid-morning deals.
However, moving in tandem with the recovery trend in local equities, the home unit bounced back to cut short early steep losses and ended day at 64.24, depreciating by 17 paise, or 0.27 per cent - the level not seen since December 19 last year.
The RBI meanwhile fixed the reference rate for the dollar at 64.2723 and for the euro at 79.5241.
Most Asian currencies too lost further ground against the greenback largely impacted by the global bloodbath.
In the meantime, panic-driven capitulation continued on domestic bourses as investors heavily offloaded across the board along with stock futures following alarming drop in global equities as well as spillover from wobbly Asian markets.
Meanwhile, the RBI's two-day policy meet started today.
The MPC meeting outcome tomorrow is being keenly awaited by the currency traders and investors against the backdrop of post Budget scenario.
The government has allocated a bulk of its budgetary funds to the rural sector, despite failing to meet fiscal deficit target this year.
Besides, the Centre also projected a higher fiscal deficit of 3.5 per cent of the GDP for 2017-18, as against the target of 3.2 per cent and also raised net borrowing for the current fiscal steeply to Rs 4.79 lakh crore as against the estimate of Rs 3.5 lakh crore.
On the international commodity front, crude prices dropped by more than 1 per cent on Tuesday, extending the slide for the third day as casualties from the sell-off in equities mounted.
Brent crude futures were trading lower at $66.63 a barrel in early Asian trading.
Globally, the US dollar turned lower against other major currencies, as markets paused after the greenback's recent climb to nearly two-week highs following last week's upbeat US employment data.
The dollar index, which measures the greenback's value against a basket of six major currencies, was down at 89.67 in early trade.
In cross-currency trades, the rupee strengthened against the pound sterling to settle at 89.60 per pound from 90.27 and also firmed up against the euro to finish at 79.68 as compared to 79.81 yesterday.
The local currency, however dropped further against the Japanese yen to end at 58.95 per yens from 58.32 earlier.
In forward market today, premium for dollar showed a weak to steady trend owing to lack of market moving factors.
The benchmark six-month forward premium payable in July softened to 142-143-1/2 paise from 142-144 paise, while the far-forward January 2019 contract ended steady at 281-283 paise.