
MUMBAI: After hitting a record low of 87.29 in opening trade, rupee closed on Monday at 87.185 to dollar after US president Donald Trump slapped punitive tariffs on imports from China, Mexico and Canada, its largest trading partners, stoking fears of a trade war that rattled global financial markets.
The rupee has lost more than 4% since October when it was trading above 83.70 despite the Reserve Bank selling billions of dollars to defend it.
The rupee fell to 87.29 before closing at 87.1850, down by nearly 0.7%, its biggest single-day percentage loss since January 13. Traders attributed the feeble recovery to heavy dollar selling by public sector banks while the RBI seen missing from stern intervention. The central bank has since October sold over $100 billion worth of dollar to prop the rupee but to not with much success.
The opening was so deep after the equity markets fell badly and closed in the red with losing half a percentage points, negating the budget boost that investors were expecting Saturday. Following this tariff wars, the dollar index, which measures the strength of the greenback against a basket of six major currencies (euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc) surged 1.35% to 109.83, its highest.
Dollar’s strength has affected other Asian currencies as well, including Chinese yuan. Since yuan and rupee often move in same direction, this fall has put pressure on rupee. The tariffs imposed by Trump have fueled worries of a full-scale trade war, with global brokerage firm Morgan Stanley saying that “the risk of our worst fears materialising has risen. Risks are skewed towards further escalation.
Asia will be exposed on account of high trade orientation and seven economies run large trade surpluses with the US,” it added. “The fear of tariffs has come true. There is safe haven demand,” a dealer at a state-owned bank said, adding more pain is on the way for rupee as Trump is unlikely to leave Indian goods in his next round of punitive tariffs.