Indian rupee hits 16.76 vs Dh1; makes fresh 5-month low

The Indian rupee traded at 16.759 against the UAE dirham at 11.35am on Thursday, making a fresh five-month low today. 

The South Asian currency fell by more than 1 per cent intra-day on Wednesday, on way to posting its biggest single-day fall in more than six months as the US dollar strengthened on the back of an improving US economic outlook and renewed concerns of a recession in Italy.

The rupee slumped to as much as 16.75 against the UAE dirham (61.55 vs the dollar) yesterday before recovering a little and ending the session at 16.68 against AED (61.28 vs USD).

Remittance houses in Dubai, Abu Dhabi and Sharjah are reporting brisk business as this slump comes within the first week of the month, the peak of the monthly remittance cycle.

Yesterday, the rupee registered a decline of 65 paise or 1.07 per cent against the US dollar, its biggest single-day drop since the 73-paise plunge on January 24, 2014.

Equity markets in India fell by about 1 per cent yesterday but are still near their lifetime highs, and were trending lower this morning too. Yesterday’s declines in Indian stock and currency markets came on the back of heavy dollar outflows as foreign investors pared their holdings.

The rupee has weakened by 5.5 per cent since hitting an eleven-month high of 15.87 against the UAE dirham (58.2 vs USD) 10 weeks ago, on May 22, 2014.

Analysts maintain that global woes including fears of a recession in Italy, and geopolitical concerns in Ukraine and the Middle East are to blame for the rupee’s recent weakness. Reports about that Russia building up troops on Ukraine border despite sanctions by US and Europe have negatively impacted emerging currencies and stocks.

In addition, India’s inflation rate is once again on the rise, with its central bank, the Reserve Bank of India, on Tuesday announcing its intentions to keep the main policy rate unchanged and warned of rising inflation pressures in the country in the rate-setting meeting.

According to HDFC Securities, the rupee could decline further to about 17.15 against the UAE dirham (63 against the US dollar) within the next 2 months. “Further upsides are likely in the short term once the pair [USD/INR] breaks out of the immediate resistances of 61,” HDFC Securities analyst Subhash Gangadharan wrote in his weekly currency report dated August 6, 2014.

That level – of 61 against the US dollar – was breached on the same day the report was published. “With the USDINR entering a short-term uptrend, exporters can choose to go light on hedging their receipts if they are willing to take the risk,” Gangadharan advised in his report. “This is because the weakening of the rupee favourably affects an exporter as their receipts for exported goods go up when the rupee depreciates.”

“It is more important for importers to hedge their payments for the next 1-2 weeks as the USDINR pair could head higher in the short term,” he wrote. “This is because the weakening of the rupee negatively affects an importer as their payments for imported goods go up when the rupee depreciates.”

Follow Emirates 24|7 on Google News.