The rupee on Monday crashed by 113 paise — the biggest single-day drop in past six years — to close at a five-month low of 70.73 due to heavy capital outflows by investors anxious over the US-China trade tension, a sharp devaluation in yuan and uncertainty over Kashmir issue.
This was the third straight session of fall for the rupee, during which it lost a massive 194 paise.
The US-China trade-related concerns weighed on the investor community and kept the pressure on the Indian rupee, forex traders said.
“India’s rupee tumbled the most since December triggered by depreciating Yuan. Chinese Yuan weakened beyond 7 per dollar for the first time since 2008, signalling a new phase in the trade war between US and China,” said V K Sharma, Head PCG & Capital Markets Strategy, HDFC Securities.
Rahul Gupta, Currency Research Head, Emkay Global Financial Services said following the global trade turmoil between US-China and political imbalance in Kashmir led USD/INR the rupee opened on a weak note.
Many forex traders would now likely rush to protect their positions in emerging markets currencies and get out as China seems more than willing to let its currency crumble in an effort to shore up trade volumes and negate the pricing impact from US tariffs, said Rajesh Cheruvu, The Chief Investment Officer, Validus Wealth.
“The ramifications for China would, of course, be the capital markets outflows from the country. The INR should also mirror some of the same weakness and FPIs may continue their dumping spree of Indian assets resulting in a bleak near term outlook for the INR,” he projected.
In a highly volatile trade, the rupee opened at 70.20 at the interbank forex market and touched a low of 70.74 and a high of 70.18 against the American currency.
The currency finally settled at 70.73 against the US dollar — a level not seen since March 1 –, down 113 paise or 1.62 per cent over its previous closing price. This is the highest single-day fall for the rupee since August 2013.
Traders said the near term focus will be on the RBI’s monetary policy meeting scheduled to announce outcome on August 7th. The market has already priced in 25 bps cut in interest rate amid lower core CPI and persistent economic slowdown.
“Meanwhile, this week is the RBI policy. Widely, RBI is expected to cut rates further by 25 bps and continue to hold the accommodative stance which will weigh on rupee,” Gupta said.