India’s rupee fell past 56 per dollar to a record low as investors favored the perceived safety of the greenback over emerging-market assets on concern Greece will leave Europe’s currency union.
Greece’s former Prime Minister Lucas Papademos said that while it is unlikely the nation will leave the euro, it’s still a risk, according to a report in the Wall Street Journal yesterday. The Dollar Index, which tracks the greenback against those of six major trading partners, rose 0.2 percent to a 20-month high. International investors cut holdings of Indian equities by $346 million in the past month, exchange data show.
“The external situation is negative and will keep the rupee under pressure,” said Kamlakar Rao, head of foreign-exchange trading in Mumbai at state-run Allahabad Bank. “The Reserve Bank of India may announce further policy changes.”
The rupee declined 1.1 percent to 56.0050 per dollar in Mumbai, and touched a record low of 56.2213 earlier, according to data compiled by Bloomberg. The currency has lost 9.2 percent this quarter in Asia’s worst currency performance.
The rupee’s one-month implied volatility, a measure of exchange-rate swings used to price options, rose 100 basis points, or 1 percentage point, to this year’s high of 14.5 percent.
Swings in the rupee widened because today was the deadline for exporters to meet a new central bank rule that required them to convert a minimum of 50 percent of their overseas earnings, Rao said. The central bank announced the regulation on May 10.
Technical charts indicate the rupee may fall as low as 58.62 before any rebound, according to Standard Chartered Plc.
“Fundamentally, the upside from here depends on strength of future RBI or government measures and the global backdrop,” Priyanka Kishore, a strategist in Mumbai at Standard Chartered, wrote in a report today.
Six-month onshore currency forwards traded at 57.93 a dollar, compared with 57.20 yesterday, and offshore non-deliverable contracts were at 58.26 from 57.46. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.