The record breaking streak for Indian rupee continues for the second straight day in the holiday-truncated week. Rupee on thursday hit a new record low of 70.32 against a dollar after earlier breaching 69.80 levels on Monday. Notably on Tuesday, domestic unit closed at 69.89 vs the American currency.
However the initial losses during early morning trade were erased and at 12:15 pm, rupee was trading at 70.24, recovering almost 15 paise from its all-time low.
Rout in emerging market currencies including INR led by Turkish Lira: After the US President Donald Trump threatened to double tariffs on steel and aluminium from Turkey, the Turkish currency lira nosedived to record lows against the dollar. And this free-fall of lira resulted in massive sell-off seen across emerging market currencies including Indian rupee. So, far rupee this year has been the worst performing Asian currency.
However, weighing the news that the US has dismissed removal of steel tariffs on Turkey, the losses in lira somewhat subsided in today's trading session and the currency stood at around 5.98 versus the dollar.
Dollar index hits 13-month high: On Wednesday, the dollar index, which measures the strength of dollar against a basket of six major currencies, reached an over 13-month high level of 96.984. However, in trade today it again surged by 0.1% at 96.756. Significant strength in the dollar as per one of the leading business dailies report is mainly on the back of latest trade policy moves by the US President Trump who on a recent basis has imposed import tariffs on some of the Turkish goods including steel and aluminium.
Freshly triggered demand for safe haven currencies amid currency war: Also, the current fall-out of emerging market currencies including Indian rupee has led to an increased demand for safe haven currencies such as dollar, Swiss franc and yen as foreign investors are using them to hedge their positions in Indian assets.
FII capital outflow: During the fortnight from August 1-14, FIIs had net sold equity worth Rs 1,100.20 crore as per the provisional data with the stock exchanges. Notably during the period, domestic institutional investors or DIIs netted an inflow of Rs. 93.64 crore into the capital markets.
Trade deficit weakness: Also, rupees free fall has been triggered on the back of widening trade deficit which for the July month has risen to an over 5-year high level of $18 billion due to expanding oil import bill as well as an increase in import of gold by almost 41%, which registered a contraction for last six months.