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Indian Rupee Market Report - Rupee Suffers Losses as Risk Sentiment Ebbs

February 10, 2011 - Written by John Cameron

In common with the majority of leading Asian currencies, the Indian Rupee trended downwards during last night’s trading session. This weakening off was partly driven by a poor performance in Indian equities markets which saw the benchmark Sensex Index lose over 120 points in the early part of the session. Selling pressure on the Rupee was accentuated as Indian Oil Refiners bought US Dollars, causing a shift of Rupees into US Dollars.

The Rupee suffered losses earlier in the week when Chinese interest rates were hiked for the second time in the space of six weeks. This caused a flow of funds into China from other South Asian economies as investors looked for a higher return on their assets.

The Rupee reached close to a one-month high in early trading this week. This was due to the Euro’s strong performance which temporarily held back the US Dollar. However, in the last two trading days, the Dollar has seen some support due to worsening risk sentiment, with institutional investors seeking out the safe haven of the US Treasury Bill. This flight to safety has been caused partly by some negative employment figures released overnight in Australia, which showed a downturn in the number of full time positions created during January. US Federal Reserve Chairman Ben Bernanke’s comments of yesterday predicting continuing high levels of unemployment in the US have also sapped appetite for risk. This has served to hold back the Rupee.

So, from both a technical and fundamental perspective, with the Rupee drifting down from recent top-of-the-range rates against a basket of currencies and the return of risk aversion in world markets, it appears that the Indian Rupee may beginning a new downward trend.

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