Indian rupee and shares fall to three-week low on dollar strength and Delhi cues

The Indian rupee fell to a three-week low on Monday as the dollar strengthened after the better than expected US jobs data on Friday while some market participants saw the exit poll results of the Delhi state elections as a setback to Prime Minister Narendra Modi.

The USD/INR rallied to 62.25 from the previous close of 62.02 translating to a 0.37% fall in the Indian unit. The rupee has fallen more than 1.6% after reversing direction from the 28 January three-month high of 61.26.

The US jobs report for January released on Friday showed that non-farm payroll addition in the month was 257,000 down from 329,000 in December but higher than the market consensus of 234,000.

Most exit poll results of the Delhi election held over the weekend showed the ruling Bharatiya Janata Party is unlikely to win, a development that will weaken the Modi government that is pushing key reforms.

The fact that the December number saw a sharp revision from the prior 252,000 added to the positive impact, ignoring the unemployment rate that came at 5.7% when analysts were expecting a repeat of the December rate of 5.6%.

Also, the average hourly earnings increased 0.5% reversing the 0.2% in December and beating expectations of 0.3% growth.

The USD index jumped 1.3% on Friday to a high of 94.76 before easing slightly on Monday, indicating the impact of the jobs data.

A stronger dollar will curtail foreign flows to Indian equities and bonds. The BSE Sensex, the benchmark Indian share index, ended 1.7% down on Monday and the benchmark 10-year government bond yield rose two basis points to 7.73%.

The index had hit a record high of 29,844 on 30 January but reversed the direction thereafter and has fallen more than 5% to Monday's three-week low.

Helped by an accommodative monetary stance by the Federal Reserve and other major global economies, inflows to Indian capital markets have totalled $7.3bn so far this year after a record $42bn of net inflow in 2014.