Rupee drops to 1-week low amid border tension, growth concerns

Mumbai: The rupee depreciated by 25 paise to settle at more than one-week low of 73.60 against the US dollar on Tuesday amid growth concerns and fresh border tensions between India and China.

A rise in demand for the US currency from banks and importers and forex outflows weighed on the local currency, according to forex dealers.

According to provisional exchange data, foreign investors withdrew Rs 1,056.52 crore from the capital markets on Tuesday.

At the interbank forex market, the rupee opened on a tepid note at 73.63 and finally closed at 73.60 - the lowest closing level since August 31- against the greenback, down 25 paise over its previous close. On Monday, the rupee had settled at 73.35 against the US dollar.

"The tension at Indo-China border also weighed on the rupee. If the situation along the border worsens, it can lead to further weakness in rupee," said Devarsh Vakil, Deputy Head Retail Research, HDFC Securities.

He further noted that technically, spot USDINR is having resistance at 73.83 and support at 73.20.

The Army on Tuesday said Chinese troops fired shots in the air and attempted to close in on an Indian position in eastern Ladakh a day earlier as it rejected charges by China's People's Liberation Army (PLA) that it transgressed across the Line of Actual Control (LAC).

The remarks by the Army came after the PLA late on Monday night alleged that the Indian troops crossed the LAC and "outrageously fired" warning shots near the Pangong lake in eastern Ladakh.

"Rupee came under pressure against the US dollar in today's session as tension between India and China escalated. Domestic equities also were weighed down on back these reports," said Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services.

Somaiya further said that in the next couple of sessions volatility for the currency is expected to remain high and the rupee could further be weighed down if tension on the border escalates".

Meanwhile, Fitch Ratings on Tuesday projected a massive 10.5 per cent contraction of India's economy in the current financial year against its earlier estimate of 5 per cent decline.

The continued spread of the virus and imposition of sporadic shutdowns across the country has disrupted economic activity, the rating agency said.

Stock markets also closed with losses. The BSE Sensex reversed its early gains to settle down by 51.88 points or 0.14 per cent at 38,365.35. The broader NSE Nifty slipped 37.70 points or 0.33 per cent to finish at 11,317.35.

Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, rose 0.43 per cent to 93.11. Brent crude futures, the global oil benchmark, fell 1.55 per cent to USD 41.36 per barrel.

This is the second consecutive day of fall for the rupee, during which it has lost 46 paise.

"Dollar also strengthened against its major crosses and better-than-expected economic number from the US could further extend gains. We expect USDINR (Spot) to quote in the range of 73.20 and 73.80," Somaiya said.

(PTI)