‘Whimsical’ August Weighs on Rupee as Kashmir Adds to Trade Woes

(Bloomberg) -- It is already Asia’s worst-performing currency this month but there may be more pain in store for India’s rupee as it enters a seasonally weak period.

The rupee has fallen an average 2.3% in August over the past nine years. This time, the currency has erased gains accumulated in June and July, and seems set for a volatile month as the U.S.-China trade spat threatens to worsen into a full-blown currency war and concerns about unrest in the Indian state of Jammu and Kashmir damp sentiment.

“Amid the trade rhetoric and domestic political noises, the rupee could see wild swings this month,” Madhavi Arora, an economist at Edelweiss Securities Ltd. wrote in a note. August has historically been “a whimsical month” for the rupee, she said.

The rupee declined the most in six years on Monday as a sliding yuan roiled Asian markets and the government’s move to scrap a long-held special status for the disputed Jammu and Kashmir state introduced some risk premium into the currency. The developments come on top of a slowdown in the economy and withdrawals of $1.9 billion last month from stocks by foreigners amid confusion over a budget tax.

Asia’s carry currencies -- the rupee and the Indonesian rupiah -- have had relatively high sensitivity to yuan weakness, according to a Deutsche Bank note. There are increasing suggestions of the Reserve Bank of India being sensitive of the yuan-rupee cross near 10, the bank said.

©2019 Bloomberg L.P.