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Wednesday 8 July 2020

Rupee now at 75.34 to a dollar despite Moody’s downgrade

If strong domestic equity markets and government's reopening plan for the domestic economy pushed the rupee up, gains in banking and financial services stocks made the domestic stock market rally for the fifth consecutive session

The Indian currency rupee ended a volatile session today after having turned stronger and stronger over the past week at 75.34 against the US dollar, following similar gains in Asian currencies. This happened a day after Moody’s lowered India’s credit rating to a notch above junk.

The rupee moved within a range of 75.35-75.61 during today’s 4-h session after starting the day nearly unchanged at 75.56 compared to its previous close. Even as strength in the dollar overseas pressured the rupee, analysts believe extended gains in the domestic equity markets amid foreign inflows provided some support to the currency.

Yesterday, the rupee had jumped sharply against the US dollar, supported by strong domestic equity markets and the central government’s reopening plan for the domestic economy. Opening at 75.35 per US dollar, the rupee had gained further ground to touch 75.29, as compared to the previous close of 75.62. The rupee had settled 8 paise higher at 75.54 per US dollar on 1 June. The government before that had announced a phased exit from two-month lockdown, starting yesterday.

“The rupee ended over two-week high on 1 June on likely overseas inflows into local stocks after the (union) government announced plans for phased re-opening of the economy also a weakening greenback kept the dollar prices weak which helped the rupee,” Jateen Trivedi, Senior Research Analyst (Commodity & Currency) at LKP Securities, had explained.

“FII inflows into equities and soft dollar led a fall in spot USD/INR. Foreign banks were on sell-side as well but the short covering was also witnessed as the prices took support near 75.30. Overall broad range sill seems intact of 75.30-76.10 for USD-INR pair,” Trivedi had said.

Stock market rallies like rupee

Propelled by gains in banking and financial services stocks, domestic stock markets rallied for the fifth consecutive session. The NSE Nifty 50 index ended up 1.56% at 9,979.10. The leaner S&P BSE Sensex benchmark climbed 1.57% to 33,825. 

Crude oil prices rose on 2 June as traders waited to see whether major producers would agree to extend their massive output cuts to shore up prices at a virtual meeting expected later this week. Brent crude futures — the global benchmark for crude oil — rose 0.91% to $38.67 per barrel.

Yesterday, Moody’s Investors Service had downgraded India’s credit rating to “Baa3” from “Baa2”. The agency cited a prolonged period of slow growth in the Indian economy, Asia’s third-largest, rising debt and persistent stress in parts of its financial system. The impact of coronavirus did not drive the cut directly but the amplification of vulnerabilities due to the pandemic in the country’s credit profile that were present and building prior to the shock caused it, Moody’s said.

Moody’s maintained a negative outlook for the new sovereign rating, citing worsening government finances as the coronavirus continues to hurt the economy. “The downgrade was mostly priced in and therefore the currency and equity markets may not react that negatively given that the global risk sentiment is still holding up,” said Abhishek Goenka, founder and CEO of forex advisory firm IFA Global.

Foreign institutional investors net purchased Indian equities worth Rs 1,575.46 crore on Monday, provisional data showed. Currency markets currently operate within reduced trading hours due to the coronavirus-induced lockdown. The temporary timings are from 10 AM to 2 PM instead of the normal timing, 9 AM to 5 PM.

At the current level, the rupee is down 5.59% against the dollar so far this year.

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