Forex traders observed that the rupee's depreciation was influenced by sustained foreign fund outflows and robust demand for the U.S. dollar from oil importers. The broader strength of the American currency in international markets further exacerbated the rupee's decline. The imposition of 25% duties on imports from Canada and Mexico, along with a 10% duty on Chinese goods, marked the initial action in what analysts fear could become a destructive global trade conflict.
The rupee's decline mirrors a broader downturn in Asian markets. Major domestic equity sectors experienced declines, with small-cap and mid-cap stocks losing 1.9% and 1.3%, respectively. State-owned enterprises saw a 4% drop, while companies in the capital goods sector, such as Larsen & Toubro, faced significant losses. Oil marketing firms, including Bharat Petroleum, Indian Oil, and Hindustan Petroleum, also reported downturns, with concerns that budgeted LPG subsidies might limit their earnings.
Analysts anticipate continued pressure on the rupee due to unfavorable macroeconomic factors and the apprehension of further depreciation as the new U.S. tariff regime unfolds. The Reserve Bank of India's reduced intervention strategy is expected to further influence the rupee's value. Foreign investors have been withdrawing funds from Indian equities amid the country's slowing economic growth, a trend that may accelerate due to fears of a global economic slowdown induced by the tariffs.
The U.S. dollar's strength has been bolstered by President Trump's tariff announcements. The dollar index, which measures the greenback against a basket of six major currencies, rose by 0.3% to 109.8. Asian currencies, including the offshore Chinese yuan, were affected, with the yuan declining by 0.5% to 7.35 per U.S. dollar.
In the equity markets, Indian shares tracked their Asian counterparts lower, influenced by the escalating trade tensions. The Nifty 50 index fell by 0.93% to 23,265.1 points, while the BSE Sensex dropped by 0.81% to 76,874.54. The MSCI Asia ex-Japan index also decreased by about 3%.
The imposition of tariffs has led to concerns about a potential trade war, with Canada and Mexico announcing retaliatory measures. Analysts expect continued pressure on the rupee due to unfavorable macroeconomic factors and fear of further depreciation as the new U.S. tariff regime under President Trump unfolds. Asian currencies and equities, including those of South Korea, Malaysia, Indonesia, and Thailand, experienced significant declines.
Foreign investors have already been withdrawing funds from Indian equities due to the country's slowing growth, and this trend may accelerate amid fears of a global economic slowdown induced by the tariffs. The Reserve Bank of India's reduced intervention strategy is anticipated to further affect the rupee's value.
The broader impact of these tariffs is evident across global markets. The U.S. dollar has strengthened considerably, approaching parity with the euro and reaching record highs against the Canadian dollar and the Mexican peso. Major stock indices, such as the S&P 500 and the Euro Stoxx 50, have anticipated significant declines, while oil prices have risen. Cryptocurrencies have also experienced notable downturns.
Export-oriented companies, especially those with investments in Mexico and Canada, have faced substantial losses in Asian, European, and American stock markets. President Trump's announcement of additional tariffs on a variety of products has strained trade relations with the eurozone, leading to inflationary concerns that may prompt the Federal Reserve to raise interest rates. Additionally, President Trump's criticisms of countries like South Africa and Panama have impacted their currencies and the stocks of companies linked to China.