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This article is more than 2 year old.

Rupee erases all YTD gains in August; analysts warn of further downside

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The currency had fallen to its year's lowest of Rs 72.40 on Tuesday.

Rupee erases all YTD gains in August; analysts warn of further downside
The rupee opened higher against the US dollar on Thursday, helped by a weaker greenback. At 02:57 PM, the rupee was trading at 71.90 a dollar, up 22 paise from its Wednesday’s close of 72.12. The home currency opened at 71.85 and touched a high and a low of 71.84 and 71.93 a dollar, respectively.
The currency had fallen to its year's lowest of Rs 72.40 on Tuesday. But some recovery in domestic equity markets and a broad slide in the US dollar against other currencies helped the rupee pullback after the sharp fall.
However, in the last month, the rupee has declined 4.5 percent, erasing all its year-to-date gains. The rupee has underperformed all its Asian peers except China’s Yuan in August.
After a period of relative stability, the domestic currency depreciated sharply in the last 1 month because of accelerated US-China trade tensions and increased outflows by foreign investors from the Indian equity market.
According to analysts, the fall needs to be seen relative to the overall weakness in currencies of emerging markets as MSCI emerging market currency index was also down by 3.3 percent in the last one month.
However, it is widely believed that yuan's fall was mainly because of China’s reported devaluation of its currency beyond the psychological mark of 7 yuan per dollar for the first time in more than a decade amid escalating tensions with the US over trade tariffs.
Continuing protests in Hong Kong and crash in Argentina’s peso (due to Argentine political turmoil) also led to a global risk-off environment and flight of capital from riskier EM assets to safe havens such as bonds, yen, and gold.
Emerging market currencies have also been depressed due to the inverted bond yield curve in the US signalling fear of a recession in the US economy.
Analysts warn of more pain ahead. Weakness in the rupee is a reflection of the broader underperformance of high-yielding emerging markets forex, weakness in equities, and the effect of recent policy actions, said Nomura in a report. Broader risk aversion and India’s basic balance deficit could continue to drive weakness in the rupee, it added.
As per analysts, going ahead, development in the US-China trade conflict, and performance of emerging market currencies especially Yuan will be key monitorable to determine the movement of the rupee. Investors also need to closely track the developments surrounding Brexit as a no-deal Brexit could further dampen business and investment sentiment globally. Domestically, the occurrence of normal monsoons and pickup in demand during the upcoming festive season will allay the growth concerns thereby supporting the value of the rupee.
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