Rupee turns volatile on US-China trade war fears
20 June 2018
The Indian rupee opened 28 paise higher today, at 68.10 per dollar against the one-month low of 68.38 per dollar set at the previous close as the Indian currency turned volatile amidst rising prospects of a full blown trade war between the United States and China, the world’s top two economies.
Global currency markets wilted after US President Donald Trump ordered another round of tariffs on more Chinese goods, after initially targeting Chinese technology products worth $50 billion, prompting retaliatory action by China.
The China-US trade war could spill over to other trading economies, hurting asset and financial markets badly and thereby altering the global economic order and impacting geopolitical order.
While the rupee is expected to move within a band, it could further weaken on account of capital flows, say economists.
Together, India’s imports and export constitute 42 per cent of the country’s gross domestic product (GDP). The country also has a current account of 2.9 per cent.
But, this, according to some economists, can to some extent be overcome by external capital inflows.
Reflecting the nervousness in the global markets, the NSE Nifty fell 0.83 per cent.
China’s Shanghai Composite Index fell 3.8 per cent on Tuesday. Benchmark emerging markets such as Hong Kong (down 2.8 per cent), Taiwan (down 1.7 per cent) and South Korea (down 1.5 per cent) too felt the heat.
China, being the largest consumer of commodities, including agricultural products, crude oil and base metals, an open trade war with the united States could alter its consumption and demand, which could a severe impact on commodity prices.
Depending on the severity of impact there could be a slowdown in global growth.
In cross currency trade, on Tuesday, the rupee, however, maintained its bullishness against the pound sterling and settled at 89.96 per pound from 90.09 yesterday.
The domestic currency, slipped against the euro to finish at 78.97 from 78.96 and also fell against the Japanese yen to end at 62.27 per 100 yen compared to 61.55 earlier.
Elsewhere, the British pound plummeted to fresh 7-month low against the greenback, extending the fall for the second consecutive session weighed down by the UK Prime Minister Theresa May's loss of a vote on her Brexit legislation in the House of Lords.
The common currency euro also drifted to near 2018 lows against the US dollar on the back of sluggish eurozone macro data and also impacted by the US-led trade war concerns.