Rupee drops 17 paise to fresh 6-week low on border tension with China

The rupee dropped by 17 paise to close at a fresh six-week low of 76.20 against the US dollar on Tuesday amid escalation in border tension with China.

An Indian Army officer and two soldiers were killed during a violent confrontation with Chinese troops in the sensitive Galwan Valley in eastern Ladakh on Monday night, the Army said.

Forex traders said besides the border tension with China, foreign fund outflows and concerns regarding rising COVID-19 cases also weighed on investor sentiment.

The rupee opened the day on a strong note at 75.89 against the US dollar and touched a high of 75.77 later.

The local unit, however, pared its sharp gains after reports of violent clash with the Chinese Army. The rupee slid to a low of 76.26 before settling at 76.20 against the US dollar, down 17 paise over its previous close.

It had settled at a more than six-week low of 76.03 against the greenback on Monday.

Equity benchmark Sensex rose by 376 points, led by gain in index heavyweights HDFC twins, ICICI Bank and Infosys amid strong cues from global equities. The NSE Nifty closed 100.30 points or 1.02 per cent.

Foreign institutional investors were net sellers in the capital market as they sold shares worth Rs 2,960.33 crore on Monday, according to provisional exchange data.

Brent crude futures, the global oil benchmark, rose 1.61 per cent to USD 40.36 per barrel.

The dollar index, which gauges the greenback's strength against a basket of six currencies, fell 0.11 per cent to 96.60.

"Indian rupee reversed early morning gains amid border tension with China," Devarsh Vakil, Deputy Head of Retail Research, HDFC Securities said adding that the "near term weakness in the rupee may continue as it has breached the crucial technical level of 76.20".

The violent face-off with the Chinese Army in Galwan Valley in eastern Ladakh is perhaps the first such incident along the border with China that Indian armed forces personnel have been killed after a gap of nearly 45 years.

Four Indian soldiers had lost their lives in an ambush at Tulung La in Arunachal Pradesh in 1975.

The Army said there were casualties on the Chinese side as well but the extent of it was not immediately clear.

"Rupee rose in the first half of the session after the Federal Reserve announced it will start purchasing corporate bonds on Tuesday through the secondary market corporate credit facility. But the currency fell sharply after India suffered casualties in a face-off with China," said Gaurang Somaiyaa, Forex & Bullion Analyst, Motilal Oswal Financial Services.

Somaiyaa further said "uncertainty on the border has triggered the overall sentiment to be weak and that could keep the rupee gains in check. We expect the rupee (Spot) to quote in the range of 75.70 and 76.20."

Forex traders said investors are also concerned about rising coronavirus cases and its impact on the global as well as domestic economy.

The number of cases around the world linked to the disease has crossed 80.51 lakh and the death toll has topped 4.37 lakh.

In India, the death toll due to COVID-19 rose to 9,900 and the number of infections rose to 3,43,091, according to the health ministry.

Meanwhile, the Financial Benchmark India Private Ltd (FBIL) set the reference rate for the rupee/dollar at 76.1056 and for rupee/euro at 85.5249. The reference rate for rupee/British pound was fixed at 94.8418 and for rupee/100 Japanese yen at 70.96.