A trading day Tuesday that saw the Indian rupee hit a seven-month high and then retreat offers a warning to investors about emerging markets.
At its intraday peak during Asian trading hours, the rupee USDINR, +0.2308% traded at 68.35 per dollar, its strongest versus the U.S. currency since August, according to FactSet data. But it soon turned south, falling to 69.08 rupees per dollar. In recent action, one dollar fetched 69.02 rupees.
Tuesday’s reversal of the rupee against the buck could serve to reignite worries about emerging-market currencies that had been on the wane in recent months as the likes of the rupee and the Turkish lira USDTRY, -0.0037% bounced back from last year’s steep falls, said Fawad Razaqzada, technical analyst at Forex.com, in a note.
Crisis-related fears “could resurface again in the coming months, if investors unwind their bullish bets on these currencies and equities, after a very positive first quarter – especially for the INR,” he said.
The iShares MSCI Emerging Markets ETF EEM, +0.05% is up 11.5% in the year to date. The S&P 500 SPX, -0.01% is up 13% over the same stretch.
The Indian currency fell to an all-time low against the U.S. dollar in October. Since then, the dollar has lost 6.8% against the rupee, FactSet data show.
Last summer’s currency selloff across emerging markets left few unscathed, and most prominently hit the Turkish lira USDTRY, -0.0037% and Argentine peso USDARS, +0.0062% the latter of which had to enlist help from the International Monetary Fund to calm markets.
One theme that isn’t in emerging markets’s favor is global growth, which those economies tend to be particularly sensitive to. The world economy is widely expected to slow this year.
Indeed, the dollar on Tuesday strengthened against the rupee at a level — the range of 68.30 to 69.22 — that was a point of major resistance for the dollar/rupee pair in the past but could now offer support and lead the dollar higher against its Indian rival, Razaqzada said.
Meanwhile, the Federal Reserve’s policy meeting set to conclude Wednesday, which could have implications for the dollar pairs.
“So, watch the USD/INR and other EM currency pairs closely to see if things develop further in the coming days,” he said. “For now, this is merely a warning, but one that cannot be ignored.”
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