(Photo: Reuters)
(Photo: Reuters)

Rupee erases gains to end lower against US dollar

  • Earlier in the morning, the currency rose as much as 0.42% to 69.38
  • Emerging currencies slipped today amid global trade tensions

Indian rupee erased all the intraday gains and closed weaker against the US dollar, tracking a fall in emerging currencies market, after traders turned their focus to global trade tensions after Narendra Modi's landslide victory.

The home currency weakened nearly 0.5% to 70.02 a dollar after news report suggested that the US is considering cutting off the flow of vital American technology to as many as five Chinese companies. Such a move would escalate tensions with China.

Among emerging currencies, Turkish Lira fell 0.6%, Russian ruble 0.46%, South African Rand 0.46%, Mexican Peso 0.32%, China renminbi 0.19%, Singapore dollar 0.18%, Thai Baht and Malaysian ringgit 0.17% each.

Trump’s administration last week barred Huawei Technologies Co. from American technology, a move that pummeled shares in U.S. chipmakers from Qualcomm Inc. to Intel Corp., and threatens to dampen global economic growth and disrupt the rollout of critical next-generation wireless networks.

Earlier in the morning, the currency rose as much as 0.42% to 69.38 after Prime Minister Narendra Modi’s second landslide victory. The ruling BJP alliance was ahead in 340 seats.

“Election results bode well for confidence towards Indian currency and bonds, but beyond the near-term it will be a challenge to skirt weak global signals. After the results, attention here on will return to the to-do list, key amongst which is the need to address the ongoing cyclical slowdown in growth and continue with the reform agenda," said Radhika Rao, economist at DBS Bank.

Rao says that NDA's return to power with a majority bodes well for policy/ reform continuity and will be welcomed by the markets as it addresses a key domestic event risk. Rao also says that the ability of the markets to sustain gains will, however, require global catalysts, particularly oil prices and US-China trade dispute, both of which are unfavourable at this juncture.

"We expect the Indian rupee to weaken past 70 again considering global risks, gains on effective exchange rate terms and domestic drivers – need to get fiscal consolidation back on track and rely on monetary policy to support growth." Rao added.

Foreign funds have purchased $9.5 billion of local shares this year, the most after China, while rupee bonds have seen outflows of $447 million.

(Bloomberg contributed to this story)