Indian rupee on Tuesday was trading down 42 paise at 64.20 against the US dollar at around 4 pm at the Interbank Foreign Exchange due to dollar’s gains after China devalued yuan, which pushed up demand from importers for the US currency. The rupee fell sharply by 29 paise to 64.16 against the dollar in early trade.
On Tuesday, China decided to devalue yuan by 2 per cent against the dollar following a slump in trade, triggering the yuan’s biggest one-day decline in a decade.
Chinese devalued its currency that made the Indian stock markets and rupee to cross below their respective psychological support levels. Equity investors turned jittery after China unexpectedly devalued its currency and the domestic indices traded in negative terrain throughout the day after opening in green on Tuesday morning. The BSE Sensex ended 235.63 points down at 27,866.09 and NSE Nifty fell 63.25 points to settle at 8,462.35.
“The markets’ response to Chinese surprise devaluation of its currency against US dollar, is ample evidence that investors worry about further measures across Asian countries inorder to prop up export competitiveness. The weak growth of late in US and Eurozone regions has meant that Asian countries export markets have been hit,” Anand James, Co Head Technical Research Desk, Geojit BNP Paribas said.
Experts say that yuan devaluation will affect Indian exporters and manufacturers, also it will continue to keep the rupee under pressure.
“Yuan devaluation will affect the Indian exporters because Chinese exports in comparison become better in position. Either we will see rupee fall to match the yuan depreciation or Indian exporters will have a tough time,” said Sudip Bandyopadhyay, president, Destimoney Securities.
Bandyopadhyay also said that there are lot of commodities and areas where dumping is happening by Chinese manufacturers like in tyre, steel, and cement. Indian manufacturers will be at a significant disadvantage unless there is anti dumping duty imposed quickly by the government.
Rupee will be definitely under pressue. The RBI will be happy to let rupee depreciate proportionatley in line with yuan, he added.
“The move indicated towards the continued government’s worry about slower growth rate of China. It would incentivise Chinese exports and put pressure in several other global markets. The decision comes at a time the government has almost failed in previous efforts which didn’t prove to be fruitful,” Hiren Dhakan, Associate Fund manager, Bonanza Portfolio said.