Donald Trump's tariff reprieve to bring relief to rupee; focus on China
The Indian rupee is poised to recover on Tuesday, boosted by the dollar's decline after U.S. President Donald Trump delayed tariffs on Canada and Mexico by a month.
The 1-month non-deliverable forward indicated that the rupee will open at 86.96-86.98 to the U.S. dollar, up from 87.1850 in the previous session.
The Indian currency hit an all-time low of 87.28 on Monday after Trump levied tariffs on three of its major trading partners. Trump suspended tariffs on two of the three countries, Canada and Mexico, agreeing to a 30-day pause.
The Canadian dollar and Mexican peso rallied, recovering from multi-year lows.
"With Canada and Mexico making a deal to avoid tariffs at least for now, what happens to the China tariffs is important," a currency trader at a bank said.
Tariffs on China are poised to come into effect from 0501 GMT on Tuesday.
"If he (Trump) delays them, then you will probably see a much bigger fall in the dollar."
The dollar index, having rallied to nearly 110 on Monday, had pulled back to 108.70 on the day. The offshore Chinese yuan recovered to 7.3110 to the U.S. dollar.
Asian shares and U.S. equity futures advanced while U.S. Treasury yields inched up. [MKTS/GLOB]
However, analysts were unsure whether the current tariff relief would last.
"We think it remains too early to tell, with tariffs likely to remain a significant tool moving forward in achieving Trump's policy agenda for both trade and non-trade purposes," MUFG Bank said in a note.
The suspension of tariffs brings back the possibility that Trump would be using them to draw out concessions from his trading partners and likely wants to avoid imposing them, analysts said.
Meanwhile, data released on Monday indicated that U.S. manufacturing activity expanded for the first time in two years, reinforcing expectations that the Federal Reserve will not cut rates at the March meeting.
KEY INDICATORS:
** One-month non-deliverable rupee forward at 87.18; onshore one-month forward premium at 20.5 paise
** Dollar index at 108.70
** Brent crude futures down 0.7% at $75.4 per barrel
** Ten-year U.S. note yield rises to 4.57%
** As per NSDL data, foreign investors sold a combined net $0.1mln worth of Indian shares last Friday and Saturday
** NSDL data shows foreign investors bought a net $33.8mln worth of Indian bonds on Feb. 3
