Indian rupee likely to get a fleeting lift on US trade deals-driven risk rally
The Indian rupee is poised to open higher on Wednesday, supported by upbeat risk appetite following progress on U.S. trade deals, although traders expect the move to be short-lived based on recent price action.
The 1-month non-deliverable forward indicated the rupee will open in the 86.34-86.36 range versus the U.S. dollar, compared with the close of 86.4075 in the previous session.
Recent sessions have shown that the rupee’s opening strength often fades quickly. Tepid inflows, one-off dollar outflows, importer hedging, and weak near-term technicals have been cited as factors behind the currency’s subdued performance by bankers.
"Intraday fades (on dollar/rupee) have not been sticking - importers are lying in wait and speculators are not showing up on the sell side," a currency trader at a Mumbai-based bank said.
"It's hard to build a case for a move lower, no matter how positive the Asian cues are."
The rupee has been depreciating in a slow, orderly fashion, with volatility remaining subdued. Despite slipping to a near one-month low, the 10-day realised volatility has dropped to 2%, the lowest since January.
ASIA RALLIES
Asian currencies and equities climbed on Thursday following more positive developments on the U.S. trade front. After the U.S. and Japan reached a deal to reduce tariffs, Washington and the European Union are reportedly moving toward a similar agreement that could include a 15% baseline U.S. tariff on EU goods—mirroring the terms of the Tokyo deal.
Japanese shares extended Wednesday's rally and the euro crept toward its highest level in nearly four years on Thursday.
Announcements of U.S. trade deals with Japan have boosted optimism that more agreements will be finalised ahead of the August 1 deadline, ANZ said in a note, pointing to an upcoming meeting between U.S. Treasury Secretary Scott Bessent and China’s trade delegation next week.
Trade negotiations aside, markets will also be focused on a rate decision from the European Central Bank later in the day.
KEY INDICATORS:
** One-month non-deliverable rupee forward at 86.46; onshore one-month forward premium at 11.75 paise
** Dollar index down at 97.14
** Brent crude futures up 0.3% at $68.7 per barrel
** Ten-year U.S. note yield at 4.38%
** As per NSDL data, foreign investors bought a net $535.4 million worth of Indian shares on July 22
** NSDL data shows foreign investors sold a net $9.4 million worth of Indian bonds on July 22
