Why did US poll uncertainty trigger dollar buying

Mumbai: The rupee fell to a two-month low against the dollar after a volatile day of trading ahead of the final results on the presidential poll, with traders buying the US currency to cover for any uncertainty surrounding the process that decides the next White House occupant.The Indian currency fell to a low of 74.91 per dollar on Wednesday after opening at 74.74, down from Tuesday’s close of 74.41. It finally ended the day at 74.76 per dollar.Dealers said Trump’s threat of challenging the results in the Supreme Court could make results more long drawn and bring more uncertainty, pressuring the rupee lower. “The markets were sitting pretty light expecting a tight election and that is why we have seen this volatility. If things don’t settle in the US and become more long drawn, then we could possibly see a risk-off scenario, which would strengthen the dollar against emerging market currencies including the rupee,” said Ashish Vaidya, head of treasury at DBS Bank India.The rupee has been on a weak wicket ahead of the US election results. The Indian currency has shed almost 100 paise since Thursday’s close of 74.10. The local market was closed on Friday.Dealers said that a clear winner is the best possible outcome for the markets. A protracted court battle could dent investor confidence.A court battle is a distinct possibility after incumbent President Donald Trump threatened to approach the US Supreme Court to stop counting of votes without considering the mail-in ballots, which could potentially swing the election one way or another. It is unclear whether Trump will make good his threat even as counting was stopped in many states for the night. A court battle could delay the declaration of the results further.79048731Forex dealers say a win for either Trump or Joe Biden would not be bad for India since both have promised to continue the stimulus, which would lead to higher government spending and more liquidity that would eventually flow into emerging markets like India.However, lack of a clear result will prolong uncertainty. "The rupee has been hurt by the uncertainty surrounding the US elections. However, it has also breached a key 200-dail moving average technical level of around 74.35 per dollar on Wednesday, which means the next support is at 75.50 per dollar. We expect some volatility this week until things settle in the US. But in the medium term, a trade surplus and improving fundamentals will prevent a sharp rupee fall," said Bhaskar Panda, head of international trade at HDFC Bank.With improving fundamentals, the record foreign exchange reserves amassed by the Reserve Bank of India (RBI) will also cushion the rupee. India’s reserves of $560 billion are at a record high and the RBI can afford to sell dollars to prevent a sharp fall in the rupee, dealers said.

from Economic Times https://ift.tt/3mSzasr