Indian Rupee’s Outperformance Over Chinese Yuan Narrows

The Indian rupee’s outperformance over its Chinese peer has been narrowing after recent strength in the yuan.

Gains in the Chinese currency accelerated sharply in overnight trade, with the yuan surging the most in seven months against the U.S. dollar. The yuan has risen in the last eight out of nine sessions, making it the best performing currency in Asia in the last one month.

The yuan turned the corner in 2017 with a gain of 5.2 percent following three years of losses. Curbs on capital outflows, dollar weakness and a stabilising economic performance supported the currency. The Chinese central bank set the strongest yuan fixing in a year on Monday, suggesting policy makers are comfortable with the strengthening yuan.

As a result, the Chinese currency appreciated 1.8 percent in one month versus a 0.3 percent gain in the Indian rupee.

In the January to March 2017 quarter, the rupee rose 4.7 percent against the U.S. dollar as compared to a 0.8 percent rise in the yuan to the dollar, taking the rupee’s outperformance over yuan to 3.9 percent.

In the first six months of this year, the rupee’s outperformance over yuan stood at 2.8 percent and narrowed to 0.9 percent on a year-to-date basis.

Indian Rupee Vs Asian Peers

With local demand supporting the yuan, it is important that local equity markets and economy perform well for the rupee to see further gains, Pramit Brahmbhatt, CEO, Veracity Financial Services Pvt told Bloombergquint in a telephonic conversation.

In addition to the weakness in equity markets and pullback in foreign funds, the run-up in crude and commodity prices could weigh on the rupee. However, Brahmbhatt expects the rupee to outperform most of its Asian peers and sees 63.80 against the dollar as a good buying level.