INDIA's RUPEE TAKES A TOSS: HIGH ALERT AS TENSIONS WITH PAKISTANIntense worry and anxiety gripped the trading floor as tension between India and Pakistan spiked, causing the Indian rupee to plummet significantly.
Currency turbulence as geopolitical concerns escalate, volatility reaches two-year high mark
The rupee made a swift dash to hit its year-to-date high of 84.95 per U.S. dollar before sharply plunging to its day's low of 85.3875. The currency finally settled with a 0.3% dip at 85.2625.
In contrast, other regional currencies gleamed with anticipation as trade tensions appeared to soften globally. China's yuan glowed to a one-month high, and the Malaysian ringgit soared nearly 1%.
The heightened unrest between New Delhi and Islamabad, following a deadly three-star militant attack on tourists in Kashmir last week, served as the perfect storm for rupee's downturn. Traders remained uneasy, responding to unverified bulletins of military skirmishes.
Over half of the tourist hotspots in the insurgency-infested Kashmir region were sealed off due to a government order on Tuesday.
A Singapore-based currency trader at a bank warned, "The USD/INR is a wild card. Less risk, better off."
This sense of unease has also propelled the rupee's 1-month implied volatility to a staggering 5.5%, a level not seen since March 2023.
Although market sentiment tilts somewhat favorably for the rupee as portfolio inflows gain momentum, escalating geopolitical conflicts pose a significant risk to the currency. Dilip Parmar, forex research analyst at HDFC Securities, predicts that the rupee could roll towards 85.70 if tensions escalate.
While investors kept their eyes locked on the US dollar index, which rose 0.2% to 99.2, they were equally watchful for the stream of US economic data due in the coming days.
Analysts quoted by ING Bank suggested that the forthcoming data-heavy week could offer numerous opportunities for investors to re-enter dollar shorts, following considerable position rebalancing the previous week.
- The currency trader at a bank warned that the USD/INR, despite its risk, could be a better choice for less risk.
- The heightened unrest between India and Pakistan has almost propelled the rupee's 1-month implied volatility to a level not seen since March 2023.
- Despite the favorable market sentiment for the rupee due to increasing portfolio inflows, escalating geopolitical conflicts pose a significant risk to the currency.
- The rupee's downturn was served by the perfect storm of heightened unrest between New Delhi and Islamabad following a deadly three-star militant attack on tourists in Kashmir last week.
- In contrast to the rupee's volatile response, other regional currencies are gleaming with anticipation as global trade tensions appear to soften.
- The Indian rupee took a significant plunge due to the spiking tensions with Pakistan, causing traders to remain uneasy and respond to unverified bulletins of military skirmishes.
- Analysts are keeping their eyes locked on the US dollar index and the forthcoming stream of US economic data, with the data-heavy week offering numerous opportunities for investors to re-enter dollar shorts.
