The already imperiled Indian rupee hit another record low of 59.98 against the U.S. dollar prompting another intervention by the Reserve Bank of India. That got the rupee back to 59.68 per dollar during Friday’s Asian session, but the currency is still headed for its worst weekly performance against the greenback in nearly two years.
The WisdomTree Indian Rupee Fund (NYSEArca: ICN) is down 5.1% in the past five trading sessions, but there could be some near-term upside for the ETF as traders see the rupee gaining some ground to 59 per dollar. As a currency falters, imports cost more, creating widening current account deficits for countries that import large amounts of raw materials, such as India. India’s current account deficit woes have been heightened by the country’s insatiable appetite for gold. [Rupee’s Plunge Could Affect Several ETFs]
While RBI has reportedly been selling dollars to bolster the rupee, the Indian currency, like the country’s equities, is seeing increased volatility. One-month implied volatility on rupee options, rose 169 basis points, or 1.69 percentage points, this week to 12.59%, reports Jeanette Rodrigues for Bloomberg.
The weak already prevented RBI from lowering interest rates at its meeting Monday and the faltering currency could have a negative impact on India’s already fragile hold on its investment-grade credit rating. Moody’s Investors Service confirmed as much Friday. Both Moody’s and Standard & Poor’s have the lowest possible investment-grade rating on Indian sovereign debt and the country has the lowest credit rating of any of the four BRIC nations. [India ETF Dichotomy]
The impact of the plunging rupee on Indian equities is already being seen. In the past five days, the WisdomTree India Earnings Fund (NYSEArca: EPI) is down almost 9%. How the rupee’s drop will affect EPI’s holdings and those of other India ETFs in terms of profits remains to be seen, but there will certainly be winners and losers.