Rupee to See More Pain as Foreign Pullback Adds to Export Woes

  • India’s currency may drop to 67-68 per dollar: StanChart
  • Rupee falls to two-month low; is Asia’s worst 2016 performer

Standard Chartered Plc is predicting more losses for the Indian rupee, which dropped to a two-month low amid outflows of foreign money from the nation’s bonds and stocks.

Overseas holdings of rupee-denominated debt fell by 16.7 billion rupees ($249 million) on Tuesday, the most since March 29, National Securities Depository Ltd. data show. That took withdrawals for this week to 22.7 billion rupees. Foreigners pulled $14.4 million from Indian shares on Monday, according to the latest figures. Stocks and currencies in emerging markets declined on Wednesday as comments by Federal Reserve officials spurred speculation a U.S. rate increase will happen as soon as next quarter.

The rupee is already Asia’s worst-performing currency this year, having retreated 1.2 percent against the dollar. Recent losses have been fueled by a May 13 report that showed Indian exports contracted 6.7 percent in April from a year ago, a 17th month of declines, while imports dropped 23.1 percent. The trade data “paint a gloomy picture” on both domestic and global demand, Nomura Holdings Inc. economists wrote in a note that day.

The Indian currency fell 0.2 percent to 66.9850 a dollar in a fifth day of declines in Mumbai, according to prices from local banks compiled by Bloomberg. That’s the longest losing run since December. It weakened to 66.9975 earlier, the lowest level since March 16.

“Recent domestic data hasn’t been encouraging,” Divya Devesh, the Singapore-based foreign-exchange strategist for Asia at Standard Chartered, wrote in an e-mail interview. “Our view is also driven by a stronger dollar on higher expectations of a Fed rate hike as the rupee actually tends to underperform in Asia during periods of risk aversion. Equity outflows might increase if risk aversion persists.”

Devesh said the rupee could weaken to 67 to 68 per dollar “in the short-term.”

Odds for a June U.S. rate hike tripled in a day to 12 percent, Fed Funds futures show. The contracts now show a 47 percent chance for an increase in September, compared with 37 percent on Monday. Atlanta Fed President Dennis Lockhart and San Francisco’s John Williams said Tuesday two increases this year may be warranted, while Dallas Fed President Robert Kaplan said a boost may come soon.

Indian sovereign bonds declined, with the yield on notes due January 2026 rising two basis points to 7.48 percent, the highest closing level since March 30, according to prices from the central bank’s trading system. India failed to meet its goal at an auction of debt-investment quotas for the first time in three years on Monday, signaling overseas demand is faltering as accelerating inflation reduces odds of more interest-rate cuts.

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