Yuan setback: Re sinks 59p to near 2-yr low of 64.78 against US dollar

With sustained demand for the American currency from banks, importers and traders after China devalued the yuan for the second straight day, the rupee continued with the downward trend for the sixth consecutive session and it tumbled by 59 paise to nearly 2-year low at 64.78 against the US dollar on Wednesday. 

Meanwhile, the stock market also behaved the same manner and continued to feel the risks from yuan devaluation. As a result, the benchmark BSE Sensex extended its loses for the fourth straight session to fall by 384 points on Wednesday, mainly due to both yuan’s development as well as no positive developments on Government’s key reforms.

As far as the rupee is concerned, it resumed lower at 64.55 as against on Tuesday closing level of 64.19 at the interbank foreign exchange (Forex) market and dropped further to 64.94 before ending at 2-year low of 64.78. The domestic currency has tumbled by 104 paise, or 1.63 per cent, in last six trading days. It hovered in a range of 64.55 and 64.94 during the day. 

China’s surprise decision to devalue the yuan sparked a sell-off in global currencies. The ones that were worst hit were those from economies whose exporters either rely on Chinese companies to buy their products or compete with their exporters for customers.In the global market, the US dollar hit a fresh two-month high against the Japanese yen on Wednesday while resource-related currencies such as the Australian dollar fell sharply against the US dollar, as Chinese authorities guided the yuan even lower.

China further guided its currency lower on Wednesday after it roiled markets on Tuesday with its decision to push their currency down 1.9 per cent against the US dollar, the largest devaluation in years.Oil prices extended losses in Asia on Wednesday as Chinese economic worries and over-supply concerns added to downward pressure, analysts said. 

“The depreciated rupee will certainly help the exporters but importers will have to face the losses if their positions are not hedged,” they added. However, the US dollar index, which measures greenback’s strength against a trade-weighted basket of six major currencies, was down by 0.80 per cent in early trade.  “Today also, the rupee traded low and depreciated by almost one per cent for the day as China allowed yuan to drop for the second day,” said Veracity Group CEO Pramit Brahmbhatt.

With such development, persistent fall in equity markets also affected the sentiments. Taking no comfort from sharp correction in global stocks, the barometer index slipped to 27,512.26, its lowest closing since July 28.The yuan has fallen almost 4 per cent in last two days, leading to industries including steel, engineering products and textiles anticipating a hit from the Chinese central bank’s move to devalue its currency to boost exports.

“Markets nosedived on global weakness which was caused on fears of further devaluation of China currency yuan. It seems unlikely to pass GST bill in this Monsoon Session of Parliament,” said Gaurav Jain, Director, Hem Securities.However, The 30-share Sensex plunged 353.83 points or 1.27 per cent to close at 27,512.26. It had lost 432.04 points in the previous three straight sessions.

In the forward market, the premium for dollar eased further on persistent receivings from exporters. The benchmark six-month premium payable in January declined further to 205-207 paise from 205.5-207 paise on Tuesday and far-forward contracts maturing in July, 2016 also fell further to 429-431 paise from 431-432 paise.

The RBI fixed the reference rate for the dollar at 64.82 and for the euro at 71.82. The rupee declined against the pound sterling to close at 101.00 from 100.01 on Tuesday and moved down further against the euro to 72.20 from 70.84. The domestic currency fell further against the Japanese unit to 52.14 per 100 yen from 51.39 on Tuesday.