Rupee hits 23-month low on back of yuan devaluation

The impact of the Chinese yuan devaluation continued to impact the domestic currency market in India for the second straight day.

After opening the session on a flat note at 64.72 levels against the previous close of 64.77 levels, the rupee hit a fresh 23-month low of 65.23. Overall, the rupee made a low of 64.63 and a high of 65.23 levels, before closing the session at 65.10 levels. According to currency market experts, the rupee may stabilise if the yuan stabilises.

“The rupee continues to reel under the effect of an Asia-wide devaluation triggered by devaluation of the Chinese yuan. Add to the stalled reforms due to the deadlock in Parliament. However, expectations of a mid-policy rate cut has offered some cushion. Demand for dollars have been relentless from importers and nationalised banks. Unwinding of short positions from the offshore traders, and domestic speculators are also causing a sharp spike in the US dollar,” Kotak Securities Currency Derivatives Associate President Anindya Banerjee said.

“Over the near term, the market will pay close attention to the direction of the yuan. In case, the yuan stabilised, we can see the rupee find stability. However, relentless depreciation can be negative for the rupee. We are looking at 64.00 as a support level and 65.50/60 as the resistance level,” Banerjee added.

“The Indian rupee continued to witness sharp depreciation against the US dollar. This week, the Asian currency markets have been detached from the global majors, as Chinese mayhem remained the prime driver,” treasury solutions firm IFA Global said.