Is Rupee set to swing wild?

MUMBAI: The rupee is turning volatile, mirroring the movements in yuan, even as emerging market currencies face the likelihood of capital flight after the Argentine Peso’s record 25% fall in a single trading session.

The surge in gold imports last month could also weaken the local unit ahead of the festival season.

The one-month Bloomberg Implied Volatility Index has surged 227 basis points since the beginning of the month, reflecting wild swings in the currency market. The gauge is now at 7%.

"Currency traders are in a tizzy," said K N Dey, founder of United Financials, a Mumbai-based forex firm. "Chinese Yuan and Argentine peso are going to weigh on other EM currencies, including the rupee. While companies are rushing to cover their offshore exposures, punters are exploiting market swings.”

Reliance Industries on Monday decided to sell 20% stake in its chemical business to Aramco. The company is expected to receive about $15 billion from the Saudi Arabian oil major. But details of the inflows are not yet known.

The rupee lost 0.86% to the dollar Tuesday to close at 71.40 to a dollar, its lowest since February 7 this year. The Reserve Bank of India is said to have intervened, checking the rupee’s sharp fall, as some state-owned banks were seen selling dollars in the spot market, dealers said.

“Speculators are already seen going short on the rupee amid increasing volatility,” said Anindya Banerjee, currency analyst at Kotak Securities. “Global investors are seeking safety of investments. Foreign fund outlfows from equities are also weighing on the rupee.”

Foreign portfolio investors have net sold Rs 24,300 crore worth of equities in July & August, show data from National Securities Depository.

The rupee is seen trading in the range of 72-70 per dollar in the next few weeks.

The Argentine peso tumbled as much as 25% to a record-low 60 per dollar Monday, Bloomberg reported. Argentina is likely heading into an economic crisis.

"The rupee cannot remain immune when emerging market currencies are sliding against the dollar," said M S Gopikrishnan, an independent forex expert. "Volatility is on the rise with speculative bets likely going up in the offshore rupee market. The yuan is charting out the future path of EM currencies.”

The Chinese yuan is plunging fast against the dollar.

Beijing on Monday allowed the yuan to fall past 7, a key level defended by the local authorities in the past.