Dip in Asian currencies, outflows likely to keep up pressure on rupee
The Indian rupee is expected to open weaker on Friday and trade with a modest depreciation bias amid a dip in its regional peers and lingering pressure from portfolio outflows as investors gird for an upcoming news-heavy week.
The 1-month non-deliverable forward indicated the rupee will open around 86.48-86.50 versus the U.S. dollar, compared with 86.4050 in the previous session.
Asian currencies were down between 0.1% and 0.3%, while the dollar index ticked up to 97.5, as investors braced for U.S. President Donald Trump's tariff deadline, a Federal Reserve policy decision, and key U.S. economic data releases, all due next week.
The rupee is expected to trade with a slight downward bias and could test support near 86.70-86.80 in the near term, a trader at a state-run bank said.
While there is "nascent" interbank interest in taking long bets on the rupee, that is largely on the back of the market expecting some positive announcement on U.S.-India trade negotiations, the trader added.
While optimism about U.S. trade deals with China and the European Union has picked up after an agreement with Japan, the prospects of a deal for India ahead of the August 1 deadline have dimmed.
Britain and India signed a free trade agreement on Thursday, with India's trade minister saying that he remains confident of concluding a trade deal with the U.S. while downplaying the significance of the looming deadline.
"Beyond tariffs and the rush to close the art of the deal, one continuing theme that we see in Asia and many countries outside the U.S. is the acceleration in moves to diversify away from or at least hedge with the U.S.," MUFG said in a note.
In addition to the wait for a trade agreement with the U.S., foreign portfolio outflows have been a pain point for the rupee with overseas investors pulling out about $500 million from local stocks over July so far.
KEY INDICATORS:
** One-month non-deliverable rupee forward at 86.60; onshore one-month forward premium at 12.50 paisa
** Dollar index up 0.1% at 97.58
** Brent crude futures up 0.5% at $69.5 per barrel
** Ten-year U.S. note yield at 4.4%
** As per NSDL data, foreign investors sold a net $382mln worth of Indian shares on July 23
** NSDL data shows foreign investors sold a net $41.7mln worth of Indian bonds on July 23
