Currency fluctuations are part of the global economic landscape and are affected by various factors such as national interest rates, trade balances, and geopolitical events. In this instance, we explore the relationship between the Indian Rupee and the Chinese Yuan, highlighting the factors that have led to their recent shifts.
Date: June 27, 2023
Place: New Delhi, India
Relationship between Rupee and Yuan
The value of the Indian rupee often fluctuates in response to changes in the value of the Chinese yuan. On a particular Tuesday, the rupee showed an upward trend, influenced by the recovery of the Chinese yuan after a less-than-expected daily USD/CNY (US Dollar/Chinese Yuan) fix.
A significant element to understand here is the non-deliverable forwards (NDFs), which are futures contracts that allow hedging against currency exchange risks. NDFs indicated that the rupee would open at around 81.94-81.96 to the U.S. dollar, showing an improvement compared to the previous session’s 82.04.
Currency Market Movements
The currency market sees a lot of currency fluctuations, and these “non-directional” moves around a particular value, like 82 in this case, are common. A forex trader suggests a slightly lower bias on the USD/INR (US Dollar/Indian Rupee) pair, meaning the Rupee might strengthen a bit. However, the possibility of a significant change following the initial increase was deemed low. Consequently, the predicted short-term range for the Rupee contracted to 81.80-82.20.
The Offshore Yuan and Its Impact
Meanwhile, the offshore yuan rose 0.3% to 7.2220 against the U.S. dollar, following the People’s Bank of China setting the USD/CNY midpoint about 100 pips (a measure of price movement in forex trading) below estimates. This move suggested that China might be uneasy with the fast depreciation of the yuan.
This change marked the first time the fixing displayed a downside bias in the recent round of yuan depreciation. Consequently, market watchers continue to observe these fixings to understand China’s intention regarding the pace of the yuan’s depreciation. This influence can be seen when other Asian currencies, including the rupee, rose in response to the yuan’s recovery.
Global Economic Factors
In addition to the specific interplay between the yuan and the rupee, other global economic indicators also contribute to currency valuations. For instance, investors monitor U.S. interest rates closely as they can have a significant impact on global forex markets. At the time, the Federal Reserve hinted at two more rate hikes, while futures indicated only one more. These future interest rate changes could alter currency dynamics significantly, including the value of the rupee.
A crucial data point in this context is the core PCE (Personal Consumption Expenditures) print, which is a key measure of inflation, due later that week. It could shape expectations around interest rates and, by extension, impact forex markets.
For anyone studying or tracking forex markets, several key indicators are worth noting:
- One-month non-deliverable rupee forward at 82.05
- Onshore one-month forward premium at 8 paise
- USD/INR NSE June futures settled on Monday at 82.0375
- The dollar index is down at 102.60
- Brent crude futures up 0.4% at $74.5 per barrel
- Ten-year U.S. note yield at 3.73%
- SGX Nifty nearest-month futures are up 0.2% at 18,735
- Foreign investors bought a net $24.3mln worth of Indian shares
This educational content is based on original reporting by Reuters, with CurrencyVeda providing further clarification and a breakdown of the facts. CurrencyVeda provides information and educational content on currency and forex markets. The information provided is for educational purposes only and should not be construed as financial advice. Users should independently verify the information and seek professional advice before making any investment decisions.