Rupee Caps Biggest Weekly Drop In Nine Months Amid India-China Standoff

The rupee on Friday recorded its biggest weekly drop against the U.S. dollar since November as the Doklam standoff between India and China, and the political friction between the U.S. and North Korea continued.

The rupee depreciated by 0.09 percent to 64.13 against the dollar from Thursday's close of 64.08, according to Bloomberg data. The local currency has weakened 0.9 percent against the greenback for the week, a first in five and the most in nine months.

That can be attributed to two key geopolitical issues. The tensions between the U.S. and North Korea and the military standoff between India and China at the Doklam valley in Sikkim, Viraj Desai, forex strategist at Emkay Global Financial Services, told BloombergQuint over the phone.

Traders may have been caught off-guard, as Desai pointed that most of them had long-term positions on the rupee, an indication that they were expecting it to strengthen.

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The sovereign 10-year bond too was headed for a weekly loss after the Reserve Bank of India halved its annual dividend to the government to Rs 30,660 crore compared to the last fiscal. The yield on the benchmark 6.79 percent bond due May 2027 gained 5 basis points this week to 6.49 percent.

“Given revenue shortfall from lower RBI dividend, focus will be on ability of direct and indirect tax collections to make up the gap,” DBS Bank said in note Friday.

Global funds cut holdings of rupee-denominated government and corporate debt by Rs 480 crore rupees on Thursday, NSDL data showed halting 11 days of gains.

Meanwhile, public banks were biggest buyers of government debt, purchasing Rs 6930 crore, while foreign banks were biggest sellers at Rs 2,700 crore.

‘Losses May Widen’

The Indian Army has asked villagers near the Doklam region to vacate houses immediately, according to a report by CNBC-TV18 on Thursday. The government later denied the report, Bloomberg reported.

“The rupee has taken a knock due to the Doklam report,” Bhupesh Bameta, head of research for foreign exchange at Edelweiss Financial, told Bloomberg. “The losses may exacerbate if tensions escalate further,” he said.