Rupee tanks 21 paise on fiscal deficit woes

The domestic unit touched an intra-day low of 65.30 in a volatile trade before regaining some lost ground.

Forex market sentiment remained subdued for a second straight session after the government data showed that India's fiscal deficit soared to Rs 7.15 lakh crore at the end of February, exceeding the revised target of Rs 5.94 lakh crore for the entire 2017-18 fiscal.

As per data released by the Controller General of Accounts (CGA), fiscal deficit for April-February was 120 per cent of the revised estimates on account of increased expenditure and subdued revenue receipts.

A handful of cautious bias largely kept trading mood at extreme level despite a better start.

Sustained month-end dollar demand from corporates and exporters also added to the pressure.

Lower-than-expected goods and services tax collections and ongoing hostilities among global trading partners also weighed on the rupee front.

Traders are cautious ahead of the long weekend and Reserve Bank of India's monetary policy announcement next week.

Markets will remain closed on Thursday and Friday on account of Mahavir Jayanti and Good Friday, respectively.

The rupee opened on a bullish note at 64.88 against Tuesday's finish of 64.97 at the inter-bank foreign exchange here and traded in a tight range in the absence of supportive cues.

But, it turned volatile mid-afternoon and succumbed to heavy selling pressure, breaching the key 65-mark to touch a low of 65.30 before recouping early losses towards the fag-end trade.

The home unit finally settled at 65.18, revealing a steep loss of 21 paise, or 0.32 per cent.

The RBI, meanwhile, fixed the reference rate for the dollar at 65.0441 and for the euro at 80.6222.

On the global energy front, crude prices fell sharply from its fresh 2018 high as investors took profit after a report showed a surprisingly large increase in US crude inventories.

Brent crude futures were trading higher at USD 69.84 a barrel in early Asian trading.

In the meantime, domestic bourses suffered a major setback as the two-day relief rally quickly ran out of steam largely impacted by carnage on Wall Street overnight following renewed jitters over a US-China trade stand off and also squaring up of bets by participants due to F&O expiry in the derivatives segment.

The benchmark BSE Sensex plunged over 205 points to end at 32,968.68, while Nifty tumbled nearly 71 points at 10,113.70.

Globally, the dollar pulled back some lost ground against a currency basket after sliding to its lowest since mid-February on Tuesday, supported by hopes that negotiations between the United States and China would avoid a full-blown trade war.

The dollar index, which measures the greenback's value against a basket of six major currencies, was up at 89.21 in early trade.

Meanwhile, the performance of the Indian currency has been largely anti-climactic during the quarter of this year after a standout performer in 2017 with rapidly changing economic and political environment.

The rupee had gained nearly 6 per cent against the US dollar last year.

A big driving part of the rupee's underperformance was largely due to a sudden spike in global crude prices and country's worsening trade deficit against the backdrop of a potentially more hawkish Federal Reserve and growing concern of a global trade war.

The government's move to impose long-term capital gains (LTCG) tax in the Union Budget 2018 too dampened the mood in the domestic currency market even as the much debated PSU bank scandal has had an extraordinary sentimental impact, highly demoralising foreign investors confidence.

Though, it managed to swim against cyclical slowdown and global currency volatility in the midst of US political headlines, echoing its impressive resilience.

The 'feel good' factor in the economy and the relative political stability along side government's continued commitments towards strong governance amid relatively low inflation rates largely shieled Indian currency from any big drag.