Yearender 2020: Rupee worst-performing Asian currency this year

The Indian currency looks to be the worst-performing Asian currency in 2020, with about a week left for the year to end. With this, the currency is heading for the third yearly decline against the American dollar. So far this year, the rupee has depreciated 3.5 percent to 73.52 per dollar.

As per analysts, the underperformance is on the back of the central bank’s dollar buying and weaker domestic economic activities following the COVID outbreak.

In 2020, India has received more than $50 billion through the FPI and FDI routes. Foreigners have bought equities worth $17.7 billion and sold $14.5 billion in debt with net inflows of $7.7 billion in CY2020, as per the official data from NSDL.

However, a recent report by HDFC Securities noted that despite substantial foreign inflows, the rupee did not revive since the RBI absorbed almost all dollar inflows through regular interventions to restrict the currency from appreciating to maintain export competitiveness.

Going ahead, the brokerage expects the rupee to trade lower at the start of 2021 on the back of bearish dollar momentum, loose monetary policy from the Federal Reserve. However, RBI’s dollar buying could restrict the downside in USD-INR and the brokerage believes the pair is expected to trade in a broad range of 71 to 76 in 2021.

Axis Securities noted that going forward the key events that will decide the direction of the dollar are: 1) How quickly President Biden will be able to push expected fiscal stimulus 2) Smaller stimulus package could tilt the needle on Fed to do more to revive the economy by keeping the rate lower or even closer to Zero for an extended period of time.

Among other trading currencies, the rupee depreciated more than 10 percent against the Euro, reflecting the Euro’s strength against the US dollar. The better-than-expected economic recovery, ultra-loose monetary policy, possibly reserve rebalancing flows and risk-on sentiment support the Euro’s strength, added HDFC Securities.

The Sterling Pound gained a percentage point versus the dollar and 4.2 percent versus the rupee, so far this year while the Japanese Yen has appreciated more than 4 percent versus the dollar so far this year despite the country having run into trade deficits.