US Federal worries hit rupee, gold hard

The uncertainty over the US Federal Reserve’s interest rate policy and consistent selling by foreign institutional investors (FIIs) saw the rupee sink to a two-year low of 66.77 to the dollar after touching 66.78 intra day.

A major reason for the weakening rupee is the feverish pace of selling of equities worth Rs 519.25 crore in November.

According to Mr M.P. Hariprasad, head of treasury at Centrum Broking, “There was panic buying of dollars by the importers as the rupee breached the psychological 66.50 levels against the US dollar.”

According to him, the US dollar rallied higher against a basket of major currencies in the world amidst expectation that the US Fed could increase interest rates either in December or the first quarter of next year.

“Since, the trend is in favour of further strengthening of dollar, market participants are expecting the rupee to head towards 67 – 67.20 levels against the dollar in the coming days,” he added.

Mr Abhishek Goenka, founder Forex Advisors expects the rupee to go above 67 in 10-15 days and 68 in a month or two. He said the rupee has been weakening due to global issues particularly the US Fed’s expected interest hike that now looks imminent. Besides “the depreciation in the Chinese yuan has sent jitters in the emerging markets,” he said.

The RBI probably sold dollars through state-owned banks to stem the fall at around 66.88 to the dollar, according to Reuters.

The dollar strengthened by 0.13 per cent against major currencies and when the dollar strengthens, gold weakens.

Gold which is seen as a safe haven, fell to its lowest since February 2010 as traders felt US Fed rates would be hiked following positive employment growth. Gold dropped to $1,064.83 an ounce or 0.7 per cent. If the decline holds, gold is headed for its sixth straight week of losses, the longest such run since August, according to Bloomberg.