Rupee Becomes Worst Performer In Asia In August: Here's Why

According to Bloomberg, the Indian rupee has slumped more than 3.6 percent against the US dollar this month, making it the worst performer among its Asian peers so far. Experts say that the decline is a reflection of the currency volatility in Chinese yuan and Argentine peso, piling on to the political instability brought-in by escalated tensions with Pakistan over revoking Kashmir's autonomy.

The yuan has remained under pressure for the over a week, with People's Bank of China setting its midpoint below the sensitive level of 7 for 5 consecutive trading days. It has weakened nearly 2.4 percent since Trump announced additional tariffs on the country's exports.

Meanwhile, the Argentinian financial crisis deepened after investors mass dumped all its investments in the country, be it stocks, bonds or currencies after market friendly President Mauricio Macri lost the country's primary elections over the weekend. Its domestic currency, peso, tanked by a massive 25 percent to 60/dollar, a record low, on Monday. Brazilian real and Mexican peso also reacted to the fall with a decline of about 1 percent.

The high volatility in currencies of emerging economies are often co-related. When currencies fluctuate, the investors often park their bets on US dollar, the most stable and highly traded currency in the world, that is considered as a safe haven. This automatically hurts all the currencies with high dollar-denominated debt, like Argentina.

While the RBI is said to have intervened the fall in the rupee, which slipped by 0.86 percent on Tuesday to 71.40/dollar, any signs of further instability in the currency may lead to further withdrawal of foreign investment, if panic spreads.

The Bloomberg report said that the rupee has depreciated in 7 out of the past 10 years, but the blow was lower considering the fact that the record-high foreign exchange reserves (in 2019) and the most stable political government in three decades, allowing policy makers to take control of the drop.