Indian rupee plunges further, now breaches 72 mark against US$ for first time

The Indian rupee today breached the 72-mark against the US dollar for the first time. The domestic currency traded at 72.12 per dollar in afternoon trade, against yesterday's closing of 71.76 per greenback. Analysts say the fall in the rupee is due to the Sino-US trade tensions along with high crude oil prices and outflow of foreign funds.

"Today USDINR touched the high of 72.11 a life time high due to sell off in Indian Equity market, higher crude oil prices and taking negative cues from Global space. Investor confidence shaken by turmoil in emerging market due to trade war between US and China. US President Donald Trump said on Wednesday that the United States was not yet ready to come to an agreement over trade disputes with China but he said talks would continue," said Anuj Gupta, Deputy Vice President - Research (Commodities and Currencies), Angel Broking Limited.

Anuj Gupta further said, "Emerging market currencies have been hit by fears that the global trade conflict would negatively affect their export-oriented economies. On the other side, Safe heaven buying seen the gold prices and gold prices are higher almost 278 points higher at 30594 levels on MCX. AT comex gold prices are trding 0.53% up at $1207 levels."

The falling rupee, in turn, pushed bond yields up with investors fearing the fallout of weaker currency on inflation in the economy. Finance Minister Arun Jaitley, however, on Wednesday said that external factors have caused the depreciation of the rupee.
 
A “deteriorating emerging market risk backdrop” and pressure on current account deficit currencies has led to the rupee hitting record lows, said Nomura Global Markets in a research note on Wednesday. The brokerage reportedly sees risk of further depreciation for the Indian currency due to a mix of domestic and international factors.
 
Local factors for depreciation include limited intervention by the Reserve Bank of India and limited concerns, in our view, over forex depreciation (watch this space), a lack of urgency to hike rates, rising political risks, and a large trade deficit with a higher oil price and portfolio outflows. 

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On Wednesday, the rupee depreciation led to incremental selling in the bond markets and pushed up the benchmark 10-year yield to 8.10 percent intraday. It closed at 8.05 percent.