Rupee Becomes Asia’s Worst Performer In August Amid China Woes, Foreign Outflows
The rupee has slumped 3.49 percent against the U.S. dollar so far in August.
The Indian rupee has now become Asia’s worst performing currency this month, as it battles pressures from China’s yuan, an unresolved global trade war and fleeing foreign funds.
The local unit has slumped 3.49 percent against the U.S. dollar so far in August, setting it up for its second-worst monthly loss in four years.
“There are many factors for the rupee’s movement but the primary one is China’s yuan, there is a one-on-one relation with that,” Harihar Krishnamoorthy, treasurer and head of global markets at FirstRand Bank, told BloombergQuint. Apart from that, U.S.’ additional duties on China, a tumble in bond prices and Argentinian peso and the largest foreign money outflows in nine months have pressured the rupee, he said.
Growing expectations of a fiscal stimulus could be another reason for the weakness, said Aditi Nayar, principal economist at ICRA. The 10-year bond yields rose by 10 basis points today to 6.62 percent, as per Bloomberg data. While every other factor linked to bond yields—such as interest rate and inflation—is positive, “the rise is linked to a fear that we could see some sort of a revenue giveaway”, Krishnamoorthy said.
“Also perhaps a little bit of concern from that side and maybe the expectation in terms of FPI flows not being as healthy as some time back,” Nayar said. Foreign investors overall have pulled out Rs 14,818 crore—the highest in nearly 10 months.
Future Outlook
The rupee breaking the 69.23 level against the dollar and staying above that is significant, according to Bhaskara Panda, regional head of treasury advisory at HDFC Bank Ltd. “Technically it was a very pertinent level over which rupee is supposed to depreciate to the dollar,” he said. “The next technical point could be 72.12 per dollar. If that goes through, it could go all the way up to 74 per dollar.”
Krishnamoorthy, however, expects the rupee to stay between 70.5-71.5 a dollar in the short term.
Speaking on the long-term perspective, Krishnamoorthy said the rupee will settle at around 70 per dollar if U.S. and China reach an acceptable agreement by end of the year, and 72 if they don’t. He expects the Reserve Bank of India’s Monetary Policy Committee to reduce rates—between 15-40 basis points—in the next bi-monthly policy.