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Rupee Falls To Eight Month-Low Tracking A Weaker Chinese Yuan

The Indian rupee weakened to an over seven-month low on Thursday, dragged down by the Chinese Yuan. 

Indian two thousand and five hundred rupee banknotes are arranged for a photograph. (Photographer: Dhiraj Singh/Bloomberg)
Indian two thousand and five hundred rupee banknotes are arranged for a photograph. (Photographer: Dhiraj Singh/Bloomberg)

The Indian rupee fell to its lowest level since December 2018 on Thursday, dragged down by a weaker Chinese currency and continued foreign investor selling in the domestic equity markets.

The local currency opened at 71.60 against the dollar and weakened through the trading session. It fell to an intraday low of 71.97, but recovered marginally to close at 71.80 against the dollar.

Rupee Falls To Eight Month-Low Tracking A Weaker Chinese Yuan

Global factors, more than domestic ones, are responsible for the weakness in the currency, said Madhavi Arora, economist at Edelweiss. “The rupee’s weakness is a knee jerk reaction to the Yuan’s move in the market today morning,” Arora said.

Factors, such as foreign investor selling in the equity markets and a stronger dollar, continue to persist, said Anand Bagri, head of domestic markets at RBL Bank. He expects the rupee’s weakening trend to continue for now.

The rupee has been the worst performing Asian currency in the last one month, depreciating by 4.1 percent against the dollar. However, on a year-to-date basis, the rupee’s performance is in line with most other Asian currencies, which have weakened against the backdrop of a trade war between the U.S. and China.

For the year-to-date, the rupee has matched the pace of depreciation in the Yuan. Both currencies have weakened 2.9 percent in 2019 against the dollar.

Currency markets have been volatile since the Yuan fell below the mark of 7 against the dollar, Arora said. Those currencies which have large exposure to China or are competing with the Chinese currency have seen more weakness, she said, adding that within emerging economies, India has been hurt more than others due to domestic dynamics and fiscal fragilities, which have left to sporadic outflows from the equity and bond markets.