The carnage in the Indian stock markets did not spare the Indian currency against the greenback.
The rupee hit near two-year lows of 66.68/$, levels which were last seen on September 4, 2013, before finally ending the day around 66.64/$.
The fall in the rupee came despite assurances by Reserve Bank of India Governor Raghuram Rajan that the central bank is ready to deploy foreign exchange reserves to curb volatility in the currency.
The rupee had opened strong at around 66.46/$ against Friday’s close of 65.83/$. However, the Indian currency weakened on falling Indian stock markets as well as mayhem in China.
“The week opened with a bang, cleaning up risk in the process. From emerging market (EM) currencies to EM financial assets, nothing was spared the hammer of the China induced risk-off. Rupee weakened by a whopping 1.2 per cent, ranking amongst the weakest in EM block. Portfolio liquidation from custodians and short covering from option traders triggered a sharp rise in dollar. Implied volatility of options shot higher. Dollar/rupee closed around 66.65 levels on spot,” Kotak Securities Associate Vice President (Currency Derivatives) Anindya Banerjee said.
Over the rest of the week, market direction will be driven by how soon China looks to use its monetary policy tool to stabilise its domestic market.
Commodity prices affected
The crash in the global stock markets impacted the global commodity markets as well with oil prices falling more than 6 per cent. According to reports, crude oil prices dipped below the $38 per barrel mark after the US markets plunged in opening trades on Monday.