Rupee drops by 12 paise to close at new 16-month low on macro worries

Heavy capital outflows and growing uncertainties over an impending rate hike by the US Federal Reserve kept forex sentiment volatile, a currency dealer said.

Traders were cautious ahead of the release of minutes tomorrow from the Federal Reserve's last policy meeting.

A strong dollar in world markets on dissipating fear of trade war between the US and China also weighed on the rupee sentiment. Washington and Beijing over the weekend agreed to back off from imposing tariffs on each other.

The dollar index, which measures the greenback's value against a basket of six major currencies was higher at 93.73.

On the energy front, crude traded modestly higher on news that China and the US had put a looming trade war "on hold".

The Brent crude futures, an international benchmark, was trading up by 15 cents at USD 78.66 a barrel and West Texas Intermediate by cents at USD 71.50 per barrel.

In the meantime, foreign investors and funds pulled out nearly Rs 18,000 crore (USD 2.65 billion) from capital markets so far, this month. Foreign portfolio investors (FPIs) had taken out more than Rs 15,500 crore from capital markets (equity and debt) in April.

Also, the country's foreign exchange reserves decreased by USD 1.237 billion to USD 417.702 billion in the week to May 11, the Reserve Bank data showed.

Meanwhile, domestic stock markets suffered yet another bruising session due to heavy profit taking. Benchmark Sensex plunged over 232 points to end at 34,616.13, while the broader NSE Nifty lost almost 80 points to close at 10,516.70.

Extending its downtrend, the rupee opened weak at 68.08 from last weekend level of 68.00 at the Interbank Foreign Exchange (Forex) market.

It lost further ground in mid-morning deals to hit a fresh intra-day low of 68.16 on sustained dollar pressure before closing at 68.12, showing a loss of 12 paise, or 0.18 per cent.

This is the lowest closing for the Indian unit since January 24, 2017, when it had ended at 68.15 against the US dollar. The RBI, meanwhile, fixed the reference rate for the dollar at 68.0883 and for the euro at 79.9289.

The yield on the benchmark 10-year government bond maturing in 2028 eased to 7.81 per cent from 7.83. In the cross-currency trade, the rupee bounced back against the pound sterling to settle at 91.41 per pound from 91.69 and also recovered against the Japanese Yen to end at 61.23 per 100 yens as compared to 61.27 last Friday.

The home unit, however softened against the euro to finish at 80.10 from 80.08 earlier. In forward market, premium for dollar edged higher due to mild paying pressure from corporates.

The benchmark six-month forward premium payable in September inched up to 93-95 paise from 93-94 paise and the far-forward February 2019 contract moved up to 228-230 paise from 227.50-228.50 paise previously.