25 Nov 2016 13:38 IST

What’s moving the rupee

The Indian currency fell to 68.86 against the dollar

The rupee continued the descent that began after Donald Trump was elected the President of the United States of America, to hit a new life-time high in Thursday’s session. The Indian currency fell to 68.86 against the dollar, below the previous low of 68.84 hit on August 28, 2013.

The Indian currency had been relatively steady since March 2016, moving in a range between 66 and 68.2 against the greenback. But the fall in the rupee has been quite sharp since the US election, declining from 66.6 on November 8 to the current level, erasing 3.3 per cent in the past fortnight. Foreign portfolio investors heading for the exit from both equity as well as debt is the primary reason for the sell-off. These investors have pulled $1.87 billion out of equity and $3.67 billion out of debt so far in November.

The Trump effect

The Indian rupee is not alone in taking a severe beating since Donald Trump was elected. All emerging market currencies have been hard hit; with some such as the Mexican Peso (11 per cent), Turkish Lira (7 per cent), Colombian Peso (6.9 per cent) and the Brazilian Real (6.5 per cent) recording sharp declines.

Currencies in Asian emerging economies have managed to bear the brunt relatively better recording declines between 3.5 to 1 per cent since the second week of November.

The US President elect’s stated intention to end trade agreements such as the TPP and to renegotiate the NAFTA, increase tariffs in order to protect US trade and make it tough for immigrants in the US has made investors wary of emerging market currencies in general.

Fed rate hike

Fear of the impending Fed rate hike in December is another reason that is causing a shudder in emerging market currencies. The 10-year bond yield in US has spiked to 2.35, increasing 58 basis points over the past month. The increase in yield in the US is causing a sell-off in bonds in all other countries as investors pull money out of emerging market debt. Bond yields in countries that are the most vulnerable to Trump’s policies such as Mexico and Colombia have jumped over 100 basis points in the past month.

The dollar surge

The surge in the dollar on expectation of Trump unleashing a spending spree that will help the US economy has sent the dollar index to a multi-year high. It currently trades at 101.7, above the 100 level that was impeding its progress since 2015.

While the US will not like the dollar to rally too much due to its negative impact on US companies, the strength in the dollar is also affecting the rupee adversely.

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