Indian rupee failed to maintain its initial gains and breached 65 against US dollar, its weakest since September 2013. The rupee has remained under pressure ever since China has devalued yuan on Tuesday. At 2.10, Indian rupee was trading 65.026 against the US dollar.
The rupee recovered 14 paise to 64.64 against the US dollar in early trade following fresh selling of the American currency by exporters and banks amid positive economic data.
The Indian currency had tumbled 59 paise to nearly 2-year low at 64.78 against the US dollar in Wednesday’s trade on sustained demand for the American currency from importers on the back of a firm greenback overseas following yuan devaluation.
Chinese currency on Thursday continued its sharp fall for the third consecutive day. China had devalued its currency twice within two days, sending shockwaves and fuelling fears of a currency war.
The Indian stock markets also gave up on its initial gains of over 200 points and were trading 100 points up in afternoon trade.
In the overseas market, the dollar suffered from a broad-based weakness against rival currencies on Wednesday as investors are worried that China devaluation of the yuan could delay an expected US interest rate hike.
Pramit Brahmbhatt, Veracity Group CEO said, “The rupee continued to trade lower and today also it lost over half per cent for the day and closed at 65.10 as yuan devaluation aided dollar to trade strong against other major currencies.
The rupee lost almost 45 paise during the day to trade as low as 65.23, its lowest level since September 2013.
The trading range for the Spot USD/INR pair is expected to be within 64.70 to 65.70.
In the forward market, the premium for dollar dropped further on sustained receiving from exporters.
The benchmark six-month premium payable in January dropped further to 199-201 paise from 205-207 paise yesterday and far-forward contracts maturing in July 2016 also moved down further to 421-423 paise from 429-431 paise.
The RBI fixed the reference rate for the dollar at 64.0212 and for the Euro at 72.2573.
The rupee dropped further against the pound sterling to close at 101.74 from 101.00 yesterday and also moved down further against the euro to 72.29 from 72.20.
The domestic currency also fell further against the Japanese currency to 52.30 per 100 yen from 52.14 yesterday.
Anindya Banerjee, associate vice president- currency derivatives, Kotak Securities said, “Indian Rupee is facing competitive devaluation pressure due to the devaluation of Chinese Yuan. Rupee, which has been an out performer over the past 18 months had become a pain trade for exporters and economy. Comments from government officials alluded to the fact that a strong Rupee is hurting us.”
On yuan devaluation impact on Indian stock markets he said, “Rupee volatility should not have much impact on stock market but in case it depreciates too much too fast, then it can trigger stop loss exits from domestic debt markets and even equity markets. However, for that to happen Rupee may have to depreciate beyond 66.00/66.50 against the US Dollar.”