The rupee depreciated further on Tuesday tracking the weakness in Chinese yuan and dollar demand by importers, said dealers. Foreign portfolio investors (FPIs), who have shifted back to a selling position in Indian equities, contributed significantly to the dollar demand.
The rupee fell by 0.5 per cent to settle at 86.26 per dollar, against the previous close of 85.86 per dollar. The Indian unit weakened 0.6 per cent on Monday.US President Donald Trump's recent threat of imposing a 50 per cent tariff on Chinese imports has escalated trade tensions between the US and China. Such threats amplify uncertainty in global markets, weighing on investor sentiment and leading to a flight to safety, further strengthening the US dollar.
The Chinese yuan fell to 7.35, a psychologically crucial level, said dealers. Yuan fell to its lowest level since September 2023 after indications that the Chinese central bank will be more tolerant of weak currency to counter the impact of the tariff.
The dollar strengthened largely driven by a significant rise in US treasury yields, particularly on the 2-year and 10-year notes, which saw an increase of 22 to 24 basis points (bps). The dollar index rose to 103.27 on Tuesday against 102.75 on Monday. It measures the strength of the greenback against a basket of six major currencies.
Additionally, oil companies capitalised on the recent decline in global oil prices, which have hit a four-year low, intensifying the demand for US dollars and adding to the rupee's downward pressure.
Anjali Kumari, Business Standard