Rupee falls below 72-mark to hit 9-month closing low

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Published: August 27, 2019 2:06:38 AM

The rupee has also been the worst performer among the Asian currencies over the last one month, having depreciated by over 4% against the dollar.

At the 72.25 level, the RBI is likely to have intervened which caused the rupee to strengthen. However, that was not enough because yuan did not reverse.

The rupee on Monday fell 36 paise to close at a nine-month low of 72.02 against the dollar following a drop in the yuan, as the US-China trade war intensified. The onshore yuan on Monday slid to a fresh 11-year low of 7.1455 against the dollar.
The US-China trade war escalated after US President Donald Trump on Friday tweeted about raising the tax by 5% on Chinese imports worth $550 billion.

Trump had tweeted, “China should not have put new Tariffs on $75 billion of United States product (politically motivated!). Starting on October 1st, the $250 billion of goods and products from China, currently being taxed at 25%, will be taxed at 30%. Additionally, the remaining $300 billion of goods and products from China, that was being taxed from September 1st at 10%, will now be taxed at 15%.”
The rupee touched an intra-day low of 72.25 against the greenback on Monday before paring losses. Dealers believe that the Reserve Bank of India (RBI) was likely to have intervened during the day.

MV Srinivasan, vice-president, Mecklai Financial Services, said the positive moves announced by the government on Friday have been passed to the stock markets but they did not help the rupee. “Forex market is concerned about what is happening globally between US and China. At the 72.25 level, the RBI is likely to have intervened which caused the rupee to strengthen. However, that was not enough because yuan did not reverse. The direction of the rupee is now totally controlled by the Chinese yuan. Other positive news are not having any major impact,” he said.

Despite the slew of announcements by the government on Friday, FPIs have sold over $100 million Indian equities on a net basis, as per provisional figures released by the exchanges. Since the beginning of August,FPIs have pulled out about $1.9 billion from the equity markets.

The rupee has also been the worst performer among the Asian currencies over the last one month, having depreciated by over 4% against the dollar.

Ananth Narayan, professor of finance at SPJIMR, said the US-China trade war has dominated currency markets and a weakening yuan has impacted emerging markets and India. “The rupee has also faced pressure from foreign portfolio investors (FPI) outflows over the past few months. Despite recent rupee weakening, the currency still remains overvalued by about 14% in real effective terms. Our current account deficit remains large despite oil prices coming down. For our own competitiveness and for a more sustainable external balance, a gently weakening rupee is welcome news,” he said.

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