Among the factors cited by traders were the absence of central bank intervention, delays in a trade deal with the US, a short squeeze on the currency and a high trade deficit number. The rupee is among the weakest performers in major Asian currencies this year, down 4.5% year-to-date.
The fall, which happened in the last hour of the trade, was sudden and unanticipated as the Reserve Bank of India had been selling dollars and protecting the rupee from depreciating past the 88.80 per dollar mark to 88.81 level since late September.
“The rupee was around 88.75 levels at around 2:30pm, when we saw heavy bids against the currency,” said Kunal Sodhani, head of treasury at Shinhan Bank India. “This took the rupee to 88.81, where we expected the RBI to intervene, but when that intervention did not come in, there was a snowball effect.”
The sharp movement in the rupee caused panic among importers who rushed for cover.
“The level went from 88.82 straight to 89.30 in a matter of a few minutes,” according to Anil Bhansali, head of treasury at Finrex Treasury Advisors. “The entire market had their stop losses between 88.82 and 89.15–all of them got triggered. This was unanticipated because we expected the trade deal with the US to happen on Thursday.”The rupee has been under consistent pressure after India was sanctioned with 50% tariffs by the US in late August. Foreign portfolio outflows from both equity and debt have added to the depreciation. Foreign portfolio investors (FPIs) have pulled out over $7.5 billion from both equity and debt so far in the year, NSDL data showed. A record high trade deficit of $41.7 billion in October, versus $32.2 billion in September, added to the pressure.
“The trade deficit number released this week added pressure and set the stage for deprecation. The level of 88.95 for the first time was a surprise, and because there was no RBI intervention, the fall was swift,” said Sajal Gupta, head, forex and commodities at Nuvama. “We have also seen this previously, where the RBI one day lets go of the level it has been protecting. It just so happened that day was today.”
