Rupee poised to rise after dollar slumps; importer flows remain in focus
The Indian rupee is likely to inch up at open on Tuesday, helped by the dollar falling to a fresh multi-year low on worries over U.S. fiscal and trade policy.
However, traders said the upside for the local unit may be limited, citing recent price action that points to persistent dollar buying by importers.
The 1-month non-deliverable forward indicated an open in the 85.64 to 85.68 range, versus 85.7550 in the previous session. On Monday, the Indian currency rallied to 85.30, before dollar buying by state-run and foreign banks triggered a reversal.
The reversal from 85.30 shows how challenging it is for the rupee to hold on at levels above 85.50, a currency trader at a private bank said.
Importer demand is "always lurking and yesterday, I reckon there were outflows via foreign banks."
The rupee’s performance on the final day of June was reflective of its struggle through the month, during which it consistently lagged behind its Asian peers.
While most regional currencies rallied between 4% and 12% in June, the Indian unit declined slightly, underscoring its relative underperformance.
NO RESPITE FOR DOLLAR
The dollar index slumped to a more than three-year low on Monday and held those losses during Asia hours, weighed down by concerns over the U.S. fiscal deficit and uncertainty around key trade agreements.
Investors are staying away from the dollar amid U.S. Senate’s efforts to pass President Donald Trump’s tax and spending bill, which faces internal Republican resistance due to its projected $3.3 trillion impact on the national debt.
On trade, the July 9 deadline for Trump's tariffs is fast approaching. Investors are keeping an eye on trade deals between the U.S. and its partners.
In good news for the rupee, the White House said that the U.S. and India are very near to finalising a trade deal.
KEY INDICATORS:
** One-month non-deliverable rupee forward at 85.76; onshore one-month forward premium at 11 paise
** Dollar index at 96.77
** Brent crude futures down 0.5% at $66.4 per barrel
** Ten-year U.S. note yield at 4.22%
** As per NSDL data, foreign investors bought a net $663.3 million worth of Indian shares on June 27
** NSDL data shows foreign investors sold a net $25.2 million worth of Indian bonds on June 27
