Weakening Yuan and Asian Currencies Deepen Rupee’s Struggles

The Chinese yuan (CNY) and Indian rupee (INR) have both weakened significantly against the U.S. dollar in early 2025, with broader declines across Asian currencies amplifying pressures on the rupee. Trade tensions, monetary policy divergences, and external imbalances are key drivers of this synchronized weakness.

Key Trends in Currency Movements

By the end of Q1 2025, the yuan had depreciated to 7.40 per USD, a 1.4% drop from late 2024, while the rupee fell to 86.80 per USD, a 1.4% decline. Cross-currency rates reflect their synchronized weakness: 1 CNY now buys 11.78 INR, up slightly from early 2025 but still elevated due to both currencies’ dollar weakness.

Other Asian currencies are also under pressure:
- The Singapore dollar (SGD) slid to 1.38 per USD,
- The South Korean won (KRW) weakened to 1,480 per USD,
- The Philippine peso (PHP) dropped to 59.70 per USD,
- The Malaysian ringgit (MYR) fell to 4.57 per USD.

Drivers of the Weakness

1. US-China Trade Tensions:
   New U.S. tariffs on Chinese goods—announced in early 2025—have reduced demand for Asian exports, hitting currencies like the yuan and won hardest. Vietnam and South Korea face GDP impacts of 9.6% and 6.2%, respectively, due to supply chain disruptions.

2. Monetary Policy Divergence:
   While the Federal Reserve’s expected rate cuts in late 2025 offer some relief, the Bank of Japan’s gradual tightening and the Fed’s lingering strength have kept the dollar elevated. This has created a “two-speed” Asia: countries like India and Indonesia, with current account deficits, are particularly vulnerable to capital outflows.

3. India’s External Imbalances:
   The rupee’s status as the “worst performer” in 2025 stems from persistent trade deficits, rising oil prices, and reduced foreign capital inflows. India’s fiscal stimulus and inflation moderation (projected at 4.3% in FY2025) offer some stability, but its reliance on external financing leaves it exposed to global risk aversion.

Regional Dynamics

• Export-Dependent Economies:
  Currencies like the KRW and Taiwanese dollar (TWD) are doubly pressured by U.S.-China trade disputes and falling global demand.
• Commodity-Linked Currencies:
  The Philippine peso and Indonesian rupiah (IDR) face downward pressure due to falling commodity prices and external debt servicing costs.

Impact on Investors

The weakening yuan and rupee create both risks and opportunities:
- Equity Markets:

The rupee’s decline has made Indian equities cheaper for dollar-based investors, though corporate earnings face pressure from import costs.
- Debt Markets:
Central banks in India and Indonesia face a dilemma: easing rates to support growth risks further currency depreciation, while hikes could stifle recovery.

Conclusion

The synchronized weakness of Asian currencies in 2025 underscores the region’s vulnerability to global trade and monetary cycles. With the yuan projected to hit 7.49 per USD by April 2026 and the rupee facing persistent external deficits, investors should remain cautious. Strategies such as hedging currency exposure or focusing on export-oriented sectors in resilient economies (e.g., Malaysia’s tech sector) may offer shelter.

Ultimately, the path to stability depends on resolving U.S.-China trade disputes, Federal Reserve policy clarity, and regional fiscal discipline. Until then, the rupee—and Asia’s currencies—will remain in the crosswinds of global macroeconomic forces.