India’s rupee dropped to a record low on speculation the U.S. Federal Reserve will pare debt purchases that have spurred inflows into emerging markets.
Investors redeemed more than $6 billion from high-yield bond funds worldwide in the week to June 5, EPFR Global data show. Global funds bought a net $15.3 billion of Indian stocks this year through June 7 and a slowdown will leave the rupee vulnerable to an unprecedented current-account deficit, according to Westpac Banking Corp. The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-used currencies excluding the yen, sank to a nine-month low today.
“Asian currencies are in free-fall at the moment and it’s difficult to pick a bottom for the rupee,” said Jonathan Cavenagh, a strategist at Westpac in Singapore. “We are also possibly seeing investors who have strong equity positions in India hedging their foreign-currency exposure, which is putting pressure on the rupee.”
The rupee was 0.4 percent weaker at 58.3950 per dollar as of 9:37 a.m. in Mumbai, having earlier touched an all-time low of 58.4175, according to data compiled by Bloomberg. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, rose 40 basis points, or 0.40 percentage point, to 10.59 percent.
Economists estimate the Fed will reduce the amount of monthly bond purchases to $65 billion from the current level of $85 billion, according to a Bloomberg News survey. Fed Chairman Ben S. Bernanke, in testimony to Congress last month, said that the monetary authority could scale back its bond-buying program if the employment outlook shows “sustainable improvement.”
The shortfall in India’s current account, the broadest measure of trade, widened to a record of about 5 percent of gross domestic product in the year ended March 31, the government estimates.
Three-month onshore rupee forwards slid 0.8 percent today to 59.34 per dollar, according to data compiled by Bloomberg. Offshore non-deliverable contracts dropped 1 percent to 59.47. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.
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