The rupee today hit a new 2019 low, which saw it moving past the 72 mark with ease. It hit 72.03 against the dollar in intra-day trade in the inter bank currency market. Here are 4 reasons why it hit a new 2019 low.
1. Demand for dollar from Foreign Portfolio Investors
Foreign Portfolio Investors (FPIs) have been selling stocks in the cash market. These are a set of Foreign Investors, who are permitted to invest and own Indian shares and stocks. So far they have net sold in stocks to the tune of Rs 10,655 crores in August, 2019. In the month of July, they net sold to the tune of Rs 16,870 crores, data by the exchanges showed.
This may have led to heavy demand for dollars from FPIs, which could have pushed the rupee lower against the dollar.
2. Sudden weakness in the Yuan
There was also a sudden weakness in the Yuan, which pushed emerging market currencies lower. If you are an export driven economy like China, you would not want to complain about weakness in the currency. For India, a weakness in the currency is painful, given that we are net importers and certain items like crude oil imports would become expensive and hence retail prices of fuel.
3. Strength in the dollar
There was a general strength in the dollar, as markets around the globe, are focusing on the U.S. central bank's annual Jackson Hole symposium, where Fed Chairman Jerome Powell is expected to address policymakers and economists.
Currency and stock market movements would depend a lot on what he has to say.
4. Lack of intervention by the RBI
It is unlikely that the RBI would have intervened in the markets today. This may have led to increased volatility, with the rupee surging past 72. In any case, there could be enough buffer with the RBI to sell dollars, given the solid forex reserves. As of now it seems that the fall n the rupee is just a "flash in the pan", and no further sharp fall can be expected.