Rupee closes at over 3-week low of 66.93 against US dollar

Mumbai: The Indian rupee on Thursday closed at over three-week low against the US dollar after the Chinese central bank set the yuan trading mid-point lower, sparking concerns of a steady devaluation of the currency.

The rupee closed at 66.93 a dollar, a level last seen on 15 December, down 0.14% from its previous close of 66.83. The local currency opened at 66.90 and touched a low of 66.96—a level last seen on 16 December. Since 1 April, the rupee has weakened 6.62%.

The yuan’s depreciation dragged Chinese equities down and trading had to be suspended after a massive 7% fall in the first hour of trade.

India’s benchmark equity index, BSE Sensex, closed at 24,851.83 points, down 2.18%, or 554.50 points. Since 1 January, it is down over 1,310 points, or 5%.

China’s yuan softened to its lowest level against the dollar since February 2011 on Thursday after the central bank set the guidance rate to its weakest since March 2011. The People’s Bank of China set the mid-point rate at 6.5646 per dollar prior to market opening, 0.5% weaker than the previous fix of 6.5314, the biggest fall between daily fixings since the yuan’s benchmark devaluation in mid-August, Reuters reported.

“The yuan devaluation is a real risk to EM currencies but there is a bigger risk to the Korean won and Taiwan dollar than the INR,” said Mitul Kotecha, currency strategist in Singapore at Barclays.

Kotecha expects the rupee to depreciate to 68.5 per dollar by March.

Asian currencies closed mixed. Japanese yen was up 0.75%, Indonesian rupiah, China offshore spot, Malaysian ringgit were up 0.11% each. However, China Renminbi was down 0.55%, Taiwan dollar 0.3%, South Korean won 0.27%, Philippines peso 0.12% and Thai baht 0.1%.

“The market should be prepared for the risk of further depreciation in the RMB in the near-term. As discussed before, seasonal factors such as corporates’ front-loading FX hedging and the reset in Chinese individuals’ USD50k annual FX conversion quota, could lead to increased USD demand at the beginning of 2016. Growth and credit risk headlines could also add to the headwinds for the currency,” said HSBC in a report on Wednesday.

Since 1 April, foreign institutional investors have sold $2.6 billion from local equity markets and bought $499.88 million from the debt market.

Meanwhile, the yield on India’s current 10-year benchmark bond closed at 7.737% compared with its Wednesday’s close of 7.737%. Bond yields and prices move in opposite directions.