Rupee extends losses, hits seven-month lows as wider trade deficit, capital outflows affect sentiment

The rupee extended losses today on concerns over widening of trade deficit amid heightened geopolitical worries. Foreign institutional investors (FIIs) pulling out over Rs 308 crore and domestic institutional investors selling stocks worth Rs 28.97 crore in the Indian market on Monday also weakened sentiment.

The Indian currency fell to 65.53 level against the US dollar-a fresh six month low-in morning trade.

In early morning trade, the currency recovered 4 paise to 65.45 against the dollar at the interbank forex market on fresh selling of the greenback amid a higher opening of domestic equities.

A weak dollar against other currencies overseas supported the domestic unit, forex dealers said.

But in afternoon trade, the currency fell to 65.6525 to the dollar, a seven-month low. 

On Monday, the rupee closed at a six-month low of 65.49, falling 29 paise, or 0.44 per cent.

The closing was the lowest closing since October 3, 2017, when the currency had settled at 65.50 against the US dollar.

The twin shocks of country's trade deficit hitting $13.69 billion and exports dipping after a gap of four months in March weighed on the rupee.

Prathamesh Mallya, chief analyst, Non-Agri Commodities & Currencies at Angel Commodities Broking said, "The fall in Indian rupee can be attributed towards higher crude oil prices, widening trade deficit and higher capital outflows.

Rupee had depreciated by 18 paise today to 65.64 on account of trade deficit from India widening to 28.5% to $13.7 billion in March 2018 taking the annual deficit to $87.2 billion. Capital outflows too added downward pressure on rupee as foreign investors withdrew Rs 308.13 crore from capital markets on Monday.

Global oil prices have also been rallying as Brent crude oil futures were at $71.9 per barrel up 0.4%. Oil prices had risen amid worries of supply rise disruptions especially in the Middle East. INR was also under pressure since yesterday when United States treasury department kept India in its monitoring list for currency manipulation. The US has included India in this monitoring list of major trading partners that merit close attention to their currency practices and macroeconomic policies.

All the factors mentioned above further set the tone for rupee depreciation to move towards 66.2 mark in the near term."

Meanwhile, the Sensex rose after forecast of a normal monsoon for the year.

The 30-share barometer was trading higher by 86.92 points, or 0.23 per cent, at 34,385, with power, metal, PSU, infrastructure, realty, capital goods and auto sector stocks leading the trend.

The gauge has gained 1,286.36 points in the previous eight sessions.

Similarly, the NSE Nifty rose 19.25 points, or 0.18 per cent, to 10,547.

The Indian Meteorological Department said on Monday the country would receive "normal" monsoon rainfall this year, raising hopes for higher farm output and a boost to the rain-dependent rural economy.