Rupee drops 44 paise to 70.90 against dollar amid sharp sell-off in equities

A global market rout triggered a sell-off in the domestic equity markets that weakened the rupee on Thursday, which slipped to the 71-mark after six sessions. But smaller-than-expected oil production cut proposed by Saudi Arabia after the Organisation of the Petroleum Exporting Countries (Opec) meeting led to sharp correction in Brent prices and helped the rupee to recover.

After opening lower at 70.82, the rupee plunged to the day’s low at 71.14 but recovered to finally settle for the day at 70.90 down 44 paise over its previous closing price of 70.46 against the dollar.

Investor sentiment took a hit after Canadian authorities arrested a top executive of Chinese tech giant Huawei Technologies for suspected Iran sanctions violations, fanning fears of further tensions between China and the US. This led to both the dollar and the yen rising on safe-haven buying.

Madhavi Arora, economist at Edelweiss Securities said, “The rupee saw a volatile session on Thursday. While it opened weaker against the dollar in line with other Asian forex amid weaker global growth concerns, and conflicting signals on the US-China trade deal. Besides, pressure on Asian forex, led by Chinese yuan renminbi, increased as markets were nervous that the US and China tension may amplify after the arrest of a top executive at Chinese tech giant Huawei.”

“However, smaller-than-expected oil production cut proposed by Saudi after the Opec meeting led to sharp correction in Brent and helped in recovery in the rupee. The rupee near-term dynamics would be contingent on Brent’s direction after the outcome of Opec and five states elections outcome as the US-China trade truce optimism starts to fade and the Fed reiterates data-dependency ahead in the December policy,” added Arora.

The Opec is meeting in Vienna to decide its production policy in coordination with non-OPEC producers including Russia, Oman and Kazakhstan.

Expectations had been of a joint cut of 1- 1.4 million barrels per day (bpd), until Saudi energy minister Khalid al-Falih said before the meeting that the “Opec+” group would be happy with a cut of just 1 million bpd.

The Opec and its allies are working towards cutting oil output but could fail to reach a deal if no compromise is found with its friend Russia, Falih said.

Oil prices snapped lower after Falih’s comments. Brent oil futures fell 3 per cent to below $60 per barrel on fears that there could be no deal.

Meanwhile, rating agency Fitch said it expects the rupee to weaken to 75 against the dollar by the middle of next year due to a widening current account deficit and tighter global financing conditions. Despite a few recent advances, the rupee is on track for its worst yearly performance in five years in 2018. Fitch has lowered India’s GDP growth forecast to 7.2 per cent in 2018-19, followed by 7 per cent in 2019-20 and 7.1 per cent in 2020-21. Benchmark equity indices cracked for the third consecutive session on negative global cues.