US jobs data may send rupee into free fall - Daily News & Analysis

Last week's robust non-farm payrolls data may be good augury for the US and the dollar, but for the rupee, it has set the stage for more dismal performance. The local currency is expected to test new lows this week as foreign institutional investors (FIIs) pull out of local markets for better returns elsewhere. To be sure, US Treasury bond yields jumped 23 basis points (bps) to two-and-a-half-year high levels post announcement of the jobs data on Friday, while the dollar index, as measured against six major currencies of the world, soared to 84.45, its highest level since July 2010. "Friday's non-farm payroll number virtually guarantees Fed tapering at the September review," said Sajjid Chinoy, India economist at JP Morgan. "With treasury yields hardening further, more debt outflows are expected from India and other emerging markets," he said. In June, FIIs were net sellers in the Indian debt market by $5.68 billion, according to data from the Securities and Exchange Board of India. A further $753 million was pulled out of the debt market in the first four days of July. An early Fed tapering can tamp the rupee down further, said Chinoy. On Friday, the local currency closed at 60.24 to the dollar – down 0.18% compared with the previous day and 1.43% on-week – after having touched a lifetime low of 60.73 per dollar on Wednesday. "Much will depend on how aggressively the Reserve Bank of India (RBI) intervenes to anchor expectations," said Chinoy. Hitendra Dave, MD & head of global markets at HSBC, however, pointed out that the rupee depreciation was part of a larger theme – the dollar's rising strength globally – and hence, any local measure would not be of much help. Indeed, in the past three weeks, the euro has lost 3.8% and the pound 5% against the dollar, in line with the depreciation seen in emerging market currencies. JP Morgan has, in its Emerging Market Strategy report, forecast that the rupee will remain above 60 to the dollar over the next 6-9 months. The foreign brokerage sees rupee at 61 per dollar by the end of September and at 62 per dollar by the end of December. This is bound to have repercussions on the Indian economy as a whole. "The current bout of sharp rupee depreciation raises a risk that oil and fertiliser subsidy costs could overshoot, thereby leading to an eventual breach of this year's fiscal deficit target of 4.8% of GDP, which in turn could have negative implications for the country's sovereign credit ratings," Deutsche Bank economists Taimur Baig and Kaushik Das said in a note. In such a scenario, declaring a war against the widening current account deficit seems the only way out, said Dave. via Business - Google News http://news.google.com/news/url?sa=t&fd=R&usg=AFQjCNGAJ-qAwHy61NWGSTvrSQBo9JTDJA&url=http://www.dnaindia.com/money/1858454/report-us-jobs-data-may-send-rupee-into-free-fall

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