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Rupee hits a three-week low on Moody’s India ratings move

FE Bureau
Rupee, Moody's India ratings, GDP, US treasury yields, dollar index, Mecklai Financial Services

The rupee on Friday closed 32 paise down to hit a three-week low of 71.285 against the greenback owing to the change in outlook by Moody's on India government’s ratings to ‘negative’ from ‘stable’ as well as a strengthening dollar. The currency fell by 37 paise to 71.33 against the dollar during Friday’s session.

Manish Wadhawan, an independent fixed income and forex expert, indicated that the change in outlook by the ratings agency was partly responsible and acted as a catalyst to the decline in the rupee. "Globally, the dollar strength contributed to the same. Fear of a sharp reduction in the GDP for the previous quarter has added to the negative sentiment. The US Fed signalling a long pause after the recent rate cut and the rise of US treasury yields by almost 40 basis points from the lows have also been putting pressure on the emerging market currencies," he said.

Experts said fund flows will be crucial in deciding the currency movement in coming times, especially after considering the change in outlook by the ratings agency. According to Bloomberg data, FPIs have bought $626.90 million from equities while they have infused $652.10 million into bonds since the beginning of November.

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MV Srinivasan, vice-president at Mecklai Financial Services, said a significant part of foreign investor interest depends on the outlook of a country and that is crucial in deciding fund flows. "This will be one factor that will be driving the rupee in coming times. Apart from the change in Moody’s outlook, a strong dollar has also had its impact on the rupee. The dollar index has climbed above the 98 levels."

The dollar index, that tracks the strength of the greenback against a basket of US trade partners' currencies, moved up to 98.31 on Friday evening from 98.14 on Thursday. The rupee has had a relatively stable year so far in 2019 with the currency depreciating by just 2.13%. Last year, the currency witnessed a depreciation of about 13%.