The main catalyst for the rupee’s fall has been the devaluation of yuan, meant to increase Chinese exports. This was the biggest devaluation of the Chinese currency since 1994. 66 mark in futures markets – has unnerved investors.
“The actions within the Chinese markets and the minutes of the FOMC might be watched intently”, Anindya Banerjee, senior supervisor for foreign money derivatives with Kotak Securities, advised IANS. While, dollar continued to trade weak against a basket of other major currencies and slipped to a fresh six-week low, following emergence of confusing signals from the US Federal Reserve meet.
The upcoming expiry of derivatives, the movement of the rupee and polls in Greece – coupled with Chinese currency and stock positions – are expected to trigger volatility in the Indian equity markets in the coming week.
Though unrelated, the stock market crash can prompt China’s central bank to further devalue yuan to propel the domestic economy.
This has strengthened the dollar, which has negatively impacted major world currencies, including the rupee. That compared with a 4.4 percent fall in the MSCI Asia-Pacific index of shares excluding Japan.
Indian share and currency markets were rattled by the carnage in Asian markets as panic gripped global investors over the adverse impact of a stark slowdown in China and the ongoing currency war that is eroding asset prices of emerging economies.
On Friday, China’s purchasing manufacturers index (PMI) fell fastest since 2009. Caixin is a barometer of factory output in the USD 10 trillion dollar Chinese economy.
“Sharp sell offs were triggered on worries over subdued corporate earnings, sell off by FPIs and profit booking dampened the sentiments”, Mahnot added. The Reserve Bank of India’s (RBI) reference rate for the dollar stood at 65.23 and for Euro stood at 72.57 on August 20, 2015.
“The extended slide in oil prices has cast doubts on the chances of a Fed rate hike”. Moody’s has recently cut India’s FY16 growth estimate to 7 per cent from 7.5 per cent.