Indian Rupee (INR) tumbles to 57.30/ US$ in free fall.
The INR, Indian Rupee today fell way past the psychological mark of 57 & hit a record low of 57.30, down Re 1 (almost 1.70%) from yesterday’s close on strong demand for the American currency from Oil importers and also on sustained capital outflows amid concerns over slowdown in global economic growth. The Indian rupee has depreciated over 30% in a year & nearly 3% so far this week, its biggest weekly fall since September 23.
As alerted earlier, the Indian rupee may decline to 56.35 from a recovery to 55 & slip further to 58.60 on sustained momentum below 56.35 levels. U.S.$/INR Jun Futures in an absolute free-fall plunged 1.70% to 57.38 against US Dollar from Previous Close of 56.41.
Equity Markets though have shown strong resilience the entire week. Given before on 7 June: Nifty June Futures, till above 4914 may now remain positive & rises to 5113-5122 can be expected. A strong & sustained further momentum above 5122 may push markets further up to a very strong resistance range of 5230 to 5275. Selling pressure can be expected on all rises above 5122 till 5275.
BSE Sensex and NSE Nifty ended the day close to the days highs & had cut losses quite sharply as both benchmarks were marginally lower in afternoon trade, outperforming global peers. Metal stocks tanked quite steeply due to fall in price of commodities in international market yesterday.
Also surrounding the Indian rupee crash were global economic growth concerns, Moody’s downgrade of world’s 15 biggest banks and mounting worries over Eurozone debt crisis including the size of a bailout needed to save Spain’s banks.
RBI directed state-owned oil firms to buy half of their dollar requirement for oil imports from a single public sector bank. RBI feels that oil firms seeking a single quote for their dollar requirement, instead of present practice of floating enquiring with several public and private sector banks, would help check volatility and arrest the free-fall of the rupee. The three big state oil firms need about USD 8 billion every month for import of crude oil and some petroleum products like LPG.
Oil Secretary G C Chaturvedi said RBI has asked only the state-owned oil marketing companies to buy half of their daily foreign exchange needs from a public sector banks and the rest could be sourced through competitive bids from public and private banks. Private sector Reliance Industries and Essar Oil, who between them import over 40% of crude oil shipped to India annually, will continue to buy dollars as per their company policies.
With US $5 billion worth foreign currency convertible bonds (FCCB) issued by 48 companies set to mature in 2012, rating agency Standard and Poor’s (S&P) said that almost half of them would default on grounds of inability to raise funds for refinancing the instruments. At the time of issue, the companies had assumed that investors would choose to convert them into equity. And the companies had made no provisions for their redemption. However, investors don’t want to convert the entire amount now and this is going to cause trouble for the companies, according to S&P.
There is a higher chance of defaults because the interest rates have gone up in general and these were very low coupon bonds. The range would be at least 25% higher interest costs. The depreciating rupee will also add to the interest cost, if companies go for restructuring or refinancing.
Ratings agency Moody’s downgraded 15 of the world’s biggest banks on Thursday. Credit Suisse, which last week was warned about weak capital levels bySwitzerland’s central bank, was the only bank in the group to suffer a three-notch downgrade. Morgan Stanley, one of the most closely watched firms in the much anticipated review, had its long-term debt rating lowered by just two notches, one level less than had been expected. Other banks downgraded by two notches were: Barclays, BNP Paribas, Royal Bank of Canada, Citigroup, Goldman Sachs Group, JPMorgan Chase, Credit Agricole, and Deutsche Bank. Along with HSBC, ratings for Bank of America, Royal Bank of Scotlandand Societe Generale were also cut by one notch. Citigroup went beyond defending itself to blasting Moody’s for its treatment of U.S. banks in general, and then to praising institutional investors and the U.S. Congress for showing less respect for the agency.
In addition to the above & Eurozone crisis came more downbeat economic data, HSBC’s initial reading for Chinese manufacturing data, which dropped to a 7 month low. Also negative was the Philadelphia Federal Reserve Index which came in much lower than expectations. The U.S. dollar index was solidly higher Thursday on safe-haven buying as the Dollar bulls regained aggression. Comex Gold futures prices ended the session sharply lower and at a fresh three-week-low close Thursday. West Texas Intermediate (WTI) Crude Oil futures at the New York Mercantile Exchange fell to their lowest level since October, pressured by weak manufacturing data from China and the U.S., reminding market watchers that the global economy remains sluggish and ratcheting up fears it may slow further.
follow us on
For More details on Trade & High Accuracy Trading Tips and ideas - Subscribe to our Trade Advisory Plans. : Moneyline
|more from market insights >>|