Rupee falls to 13 months low in last three trading sessions as economic fundamentals weakened and global growth falters.
Today the Indian rupee fell to 63.88, continues depreciation after weaker than expected economic fundamentals. FOMC statement and its market expectation is also playing crucial role here.
On Friday after market hours India released Industrial Production and CPI data. Industrial Production fell 4.2% from earlier 2.5%. Diwali holidays in October could have affected the data thats what we can assume. CPI came to 4.38% from earlier 5.52%, fall in inflation is more due to base effect and falling oil prices. On the same day because of negative IP the currency fell in NDF market.
Then-after India trade balance reported widening trade deficit as imports increased by 26.8% while exports increased only by 7.2%. Wide trade gap was also one of the reasons behind last year drastic fall in rupee.
Weakening fundamentals, expectation of lower global growth and improving U.S. economy has started some sell off in equity and bond market. We are observing downside movement in securities having heavy investment of foreign investors. There is also sell-off in debt market that increased Bond yields to 7.99%.
Today we may get hints of Feds view on interest rate. Earlier the committee had decided to keep interest rate unchanged for extended period of time even after positive data. The anxiety in the market may end to certain extent after the statement release. It could be possible that we may see wide gap opening tomorrow in some currencies and commodities.
If the weakness in rupee continues then we may see rate cut by RBI later than what we are expecting. The central bank may not intervene in the market if the currency remains within the broad range of 61-63 but it may enter into the market if volatility increases.
Rupee has remained strong against dollar compare to other emerging market currencies. Depreciation in rupee was expected but not this sooner. Feds comment on interest rate hike and its economic projections will remain in watch. If Fed does not change its tone then we may see appreciation in currency market but hawkish tone may do the exact opposite.