Rupee falls on fears North Korea N-test may spur outflow from Asia

Rupee falls on fears North Korea N-test may spur outflow from Asia
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First Published: Mon, May 25 2009. 10 55 PM IST
Updated: Mon, May 25 2009. 10 55 PM IST
Mumbai: The rupee fell for the first time in seven days on concerns overseas investors will pull money out of Asia after North Korea said it held a nuclear test on Monday.
The currency declined the most in almost two weeks as the MSCI Emerging Markets Index of stocks dropped, adding to speculation global funds see increased risk.
However, a report by Goldman Sachs on Monday said the rupee is likely to rise to 46 to the dollar within 12 months in the backdrop of a stable government at the Centre and relatively resilient domestic demand.
Noting that there are significant pressures for rupee appreciation, the report said the currency gained around 5% against the dollar since the victory for the Congress-led United Progressive Alliance in the general election.
But on Monday, a gauge that tracks the dollar against six major currencies rose for the first time in six days, indicating investors are opting for the relative safety of the greenback.
“The rupee is falling and it’s a reaction to the North Korean nuclear test,” said Sudarshan Bhatt, chief currency trader at state-owned Corporation Bank in Mumbai. Banks are reversing dollar short positions to reduce risk. Stocks are expected to drop, and that could add to the rupee’s weakness.
The rupee weakened 0.4% to close at 47.29 to the dollar in Mumbai. The Indian currency had climbed 4.9% last week, the best performance since March 1996. A short position is a bet that an asset or currency will fall.
Offshore contracts indicate bets the rupee will trade at 47.46 to the dollar in a month, compared with expectations of 47.22 as on 22 May. Forwards are agreements in which assets are bought and sold at current prices for future delivery. Non-deliverable contracts are settled in dollars rather than the local currency.
North Korea conducted a nuclear test on Monday, the nation’s official Korean Central News Agency said. The underground test was successful, according to the report.
The ICE’s Dollar Index, which tracks the greenback against the euro, the Japanese yen, the British pound, the Canadian dollar, the Swiss franc and Sweden’s krona, climbed 0.3%.
PTI contributed to this story.
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First Published: Mon, May 25 2009. 10 55 PM IST