Indian rupee sees worst day in a month tracking Chinese yuan; RBI eyed

The Indian rupee weakened against the U.S. currency on Monday, tracking a fall in the Chinese yuan, with traders citing heavy dollar buying from state-run banks.

The rupee finished the session at 81.6125 per dollar, 0.35% lower than its previous close of 81.3250.

The currency posted its biggest single-day percentage fall since Dec. 15, after a rally last week where it went from trading near record lows to strengthening to the 81.30-handle.

Traders cited dollar purchases by public sector banks, probably on behalf of the Reserve Bank of India (RBI), and stop-losses being triggered as the reason for the rupee’s sharp move on Monday.

“We continue to see limited appreciation from the current levels for the rupee,” wrote Almus Risk Consulting’s COO and co-founder Jayram Krishnamurthy in a note.

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The RBI is likely to rebuild its reserves, while a strong rupee during export weakness could be counterproductive. Plus, low premiums would drive importers and foreign currency liability holders to increase their hedges, Krishnamurthy added.

Market participants have also pointed to foreign portfolio outflows weighing on the rupee. Overseas investors have taken out nearly $2 billion from Indian equities so far this month and around $116 million from debt.

The rupee mirrored its Chinese counterpart, as the onshore yuan pulled back from six-month highs to ease to 6.7292 per dollar.

The dollar index nudged higher, recovering from hitting seven-month lows earlier. Data on monthly U.S. retail sales, producer prices and industrial output are all due this week.

The data comes amid expectations that the Federal Reserve policy rate is nearing its peak. Several economists expect the Fed to halt its tightening cycle after another 50 basis point increase in February.