Dollar pullback to offer no relief with rupee caught in US crosswinds
The Indian rupee is expected to remain under strain on Tuesday despite a dip in the dollar with steep U.S. tariffs and visa fee increases denting sentiment towards the Asian currency.
The 1-month non-deliverable forward indicated the rupee will open marginally weaker from 88.3075 on Monday. At current levels, the rupee is only a shade away from the all-time low of 88.4550 marked two weeks back.
The rupee, already struggling under the weight of U.S. tariffs that are steeper than those faced by other Asian countries, is now contending with the fallout of President Donald Trump's decision to raise H-1B visa fees for new applications.
The move could weigh on India's IT services sector, slow remittances, and dampen overall investor sentiment, leaving the currency vulnerable to further weakness.
DBS Bank noted that India was the largest recipient of overseas remittances in the world, with the U.S. share at about a third of the total.
"We don’t expect any knee jerk impact on this component, though steady tightening in work related visas in the US might impact inflows," it said.
The latest U.S. step adds to headwinds for the rupee, suggesting it may remain one of the weaker currencies in Asia in the near term, a currency trader at a Mumbai-based bank said.
The Reserve Bank of India will be watching and is expected to act to keep markets orderly, providing a buffer against big swings, he said.
DOLLAR RETREATS, EYES ON FED
The dollar struggled in trading in Asia on Tuesday with traders weighing comments by members of the Federal Reserve for clues on the path of interest rates.
The comments, which analysts said on balance leaned hawkish, came after the Fed cut rates last week and signalled two more cuts for the year. Markets are now pricing in a very high probability that the Fed will follow last week’s move with another rate reduction in October.
KEY INDICATORS:
** One-month non-deliverable rupee forward at 88.48; onshore one-month forward premium at 14 paise
** Dollar index down at 97.31
** Brent crude futures down 0.5% at $66.3 per barrel
** Ten-year U.S. note yield at 4.15%
** As per NSDL data, foreign investors bought a net $127.8mln worth of Indian shares on Sep. 21
** NSDL data shows foreign investors bought a net $69.2mln worth of Indian bonds on Sep. 21
