Dollar Holds Steady, As Rupee Tumbles Further
The U.S. dollar and other major currencies traded in tight ranges Tuesday, while among emerging-market units, the Indian rupee tumbled to a fresh all-time low.
The dollar rose above the 64-rupee mark for the first time ever during early Mumbai trading hours. The U.S. unit was buying 64.06 rupees, up from 63.14 rupees late Monday in North America.
Some emerging-market nations with current-account deficits have seen their currencies, and often their stocks, suffer, with rising U.S. Treasury yields sparking large capital flows into the dollar.
In India’s case, the central bank has been restrained in its ability to bolster the currency due to concerns of slowing growth.
However, the government has taken other measures in an attempt to stem the rupee’s recent fall, with Nomura economist Sonal Varma citing a move Monday to ban the duty-free import of flat-screen televisions by airline passengers.
Varma said these and other recent moves “are unlikely to create a big ripple, but it is an important signal that the government continues to adopt a quick-fix approach to current problems.”
“The underlying assumption is that the funding gap is a temporary problem, which can be tided over through such artificial trade barriers. The reality is that the current-account deficit is high for various fundamental reasons … but nothing much is being done to address that,” she wrote in a note to clients.
Among other ailing emerging market currencies, the Indonesian rupiah managed to reverse some recent losses Tuesday. The dollar eased to 10,485 rupiah, after soaring as high as 10,675 rupiah earlier in the day — its highest level in more than four years.
Majors bid their time
The major currency pairs saw more modest movement Tuesday, as investors awaited the latest policy-meeting minutes from the Federal Reserve, due out Wednesday.
As with many other asset classes, the foreign-exchange market is keeping a close eye on when the U.S. central bank will begin to slow its bond-buying, currently at $85 billion a month.
On Tuesday, the ICE dollar index , which measures the U.S. unit against six rivals, edged down to 81.238 from 81.255 late Monday, after swinging between losses and gains.
The WSJ Dollar Index , which uses a slightly larger comparison basket than the ICE index, was at 73.57, unchanged from its level late Monday in North America.
Crédit Agricole analysts wrote Tuesday that “investors’ expectations for the Fed to taper [quantitative easing] as soon as in September have been rising considerably of late. In our view, such a scenario is increasingly priced in.”
As a result, they saw limited scope for further gains for U.S. yields, while an improving economic picture in Europe could allow the euro “to trend back to $1.36 and above over the coming few weeks.”
On Tuesday, the euro was marginally higher at $1.3345, compared to late Monday’s $1.3337.
Among other key pairs, the British pound was little changed at $1.5649 from $1.5647 on Monday, but the Australian dollar saw a sizeable drop to 90.63 U.S. cents from 91.22 U.S. cents.
The Japanese yen was slightly firmer, with the dollar slipping to ¥97.49 from ¥97.64.
Source : Marketwatch
