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Rupee in fall zone, traders rush to hedge forex exposures

, ET Bureau|
Updated: Sep 12, 2018, 08.13 AM IST
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Uncovered exposures have shrunk to about $42-44 billion, from a high of $65 billion seen in March this year, show an estimate by Standard Chartered Bank.
The rupee’s free fall has achieved what repeated Mint Street counsel could not: Getting traders to hedge their uncovered foreign-exchange exposures.

The quantum of risky and uncovered transactions is estimated to have fallen about 35 per cent from their peak a few months ago, giving comfort to traders that volatility may now subside.

“While importers have bought cover, foreign portfolio investors are not leaving any unhedged positions,” said M S Gopikrishnan, Head of Macro Trading, South Asia, at Standard Chartered Bank. “The rupee is likely to extend its losses amid higher dollar demand and overall emerging market weakness."

The rupee slid to a new record low at 72.74 a dollar Tuesday amid renewed global trade war worries. It lost 0.35 per cent to close at 72.70.

Uncovered exposures have shrunk to about $42-44 billion, from a high of $65 billion seen in March this year, show an estimate by Standard Chartered Bank. Unhedged exposures started building up from January 2017.

A fall in unhedged exposures diminishes the likelihood of losses arising from wild currency swings.

Worsening relations between the US and China remain at the top of the agenda, with the Trump administration ready to boost tariffs on more Chinese goods, Bloomberg reported.

“Importers are covering two-four months of their offshore payables,” said Abhishek Goenka, CEO, IFA Global. “With the rupee’s drastic fall, corporates are not keeping any open exposures as the global contagion is spreading, triggering weakness across emerging market currencies.”

A few months ago, importers were mostly going for shorter-maturity weekly or fortnightly forwards contracts.

Foreign portfolio investors have sold Rs 7,429 crore worth of domestic debt securities and equities, show data from the National Securities Depository.

There are also reports that China could ask WTO for authorisation to impose trade sanctions on US, leading to apprehension among global investors.

During the past currency crisis in 2013, many importers, portfolio investors and borrowers in US dollars left their liabilities largely uncovered. When the currency slumped, investors saw the value of their holdings erode and companies with foreign borrowing saw their liabilities increase.

The RBI subsequently said that all corporates with US dollar exposure must cover their positions by buying dollars in advance or well ahead of their payment deadlines.
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