Escalating trade war concerns and higher U.S. interest rates have pushed an index of emerging currencies almost 7 percent lower this year, according to Reuters.
Investors braced for a protracted trade war between the world's two biggest economies after U.S. President Donald Trump said on Tuesday the U.S. was taking a tough stance with China. That cemented expectations that new levies on Chinese exports will soon be announced.
Earlier, China asked for an authorization from the World Trade Organization (WTO) to impose
$7 billion a year in sanctions on the United States. According to Beijing, the sanctions should be imposed in retaliation for Washington’s non-compliance with a 2017 trade dispute ruling over dumping duties.
On Wednesday, the yuan touched 2-1/2 week lows against the dollar, as Sino-U.S. trade tensions continued to weigh on Chinese financial markets, leading Asian peers lower.
The Australian dollar-heavily linked to Chinese trade- was another casualty of the trade tension between Beijing and Washington, tumbling to its weakest level against the greenback since February 2016.
India's rupee crashed below the 72-mark
The Indian rupee which has lost nearly 12% this year, making it the worst performing Asian currency, at the interbank foreign exchange market on Wednesday hit a historic low of 72.91 against the greenback before rebounding by 100 paise to trade higher in the afternoon.
“The rupee ... is symptomatic of the overall situation in emerging markets, but it also embeds some idiosyncratic problems - with the fiscal deficit growing and the current account deficit widening on (the) back of rising commodity prices,” Cristian Maggio, head of emerging markets strategy at TD Securities told the news agency.
Former Reserve Bank of India (RBI) governor Raghuram Rajan warned that the rupee could become significantly undervalued if it keeps falling at the current rate, Press Trust of India reported. He also said RBI was correct in its use of interest rates to control inflation.
Meanwhile, economic affairs secretary Subhash Chandra Garg tweeted that the government and the RBI will do everything to ensure that rupee doesn't depreciate to "unreasonable levels."
The central bank has already raised interest rates twice since June and spent billions of dollars to bolster the currency, but with little success.
The Indian currency markets will remain closed on Thursday for the Ganesh Chaturthi festival. Local media reported that India's Prime Minister Narendra Modi will unveil strategies to tackle the weaker rupee and higher prices during the weekend.
Besides the rupee, the worst-hit Turkish lira and Argentine peso have steadied off record lows. The lira firmed by 1.5% against the dollar by the early afternoon ahead of a Turkish central bank interest rate announcement on Thursday.
In Russia, last week the ruble hit a historic low of 69.64 against the greenback, its weakest level since March 2016 as U.S. lawmakers were discussing possible new sanctions on Russia.
"In the next few weeks, until specific information on new sanctions package emerges, the market will remain very nervous, reacting to high grade of uncertainty," Nordea Bank said in a note.