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March 20, 2019, 10:50 a.m. EDT

The Indian rupee just sent investors a ‘warning’ on emerging markets: analyst

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By Anneken Tappe, MarketWatch


AFP/Getty Images

Tuesday’s price action in the Indian rupee, that saw the currency hit a seven-month high and then retreat offers a warning to investors about emerging markets.

/zigman2/quotes/210562010/realtime/sampled USDINR 68.8400, 0.0000, 0.0000%

At its intraday peak during Asian trading hours, the rupee /zigman2/quotes/210562010/realtime/sampled USDINR 0.0000% traded at 68.35 per dollar on Tuesday, 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.

On Wednesday, one dollar bought 68.86 rupees, down 0.2%.

But 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 /zigman2/quotes/210561895/realtime/sampled USDTRY +0.0053% 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 /zigman2/quotes/201454250/composite EEM -0.51%  is up 11.1% in the year to date. The S&P 500 /zigman2/quotes/210599714/realtime SPX -0.62%  is up 12.7% 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 some 7% against the rupee, FactSet data show.

Last summer’s currency selloff across emerging markets left few unscathed, and most prominently hit the Turkish lira /zigman2/quotes/210561895/realtime/sampled USDTRY +0.0053% and Argentine peso /zigman2/quotes/210561956/realtime/sampled USDARS +0.0202% , 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.”

/zigman2/quotes/210562010/realtime/sampled
US : Tullet Prebon
68.8400
0.0000 0.0000%
Volume: 0.0000
July 19, 2019 3:24p
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/zigman2/quotes/210561895/realtime/sampled
US : Tullet Prebon
5.6551
+0.0003 +0.0053%
Volume: 0.0000
July 19, 2019 4:59p
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/zigman2/quotes/201454250/composite
US : U.S.: NYSE Arca
$ 42.86
-0.22 -0.51%
Volume: 81.77M
July 19, 2019 8:00p
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/zigman2/quotes/210599714/realtime
US : S&P US
2,976.61
-18.50 -0.62%
Volume: 1.87B
July 19, 2019 5:08p
loading...
/zigman2/quotes/210561895/realtime/sampled
US : Tullet Prebon
5.6551
+0.0003 +0.0053%
Volume: 0.0000
July 19, 2019 4:59p
loading...
/zigman2/quotes/210561956/realtime/sampled
US : Tullet Prebon
42.3926
+0.0086 +0.0202%
Volume: 0.0000
July 21, 2019 5:50p
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Anneken Tappe is a markets reporter for MarketWatch. She is based in New York.

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