Rupee's response to dollar slide, yuan strength blunted by local flows
The Indian rupee is likely to show a muted response at Tuesday's open to the slide in the dollar index and strength in the yuan, with traders expecting a repeat of the previous session's price action in which corporate activity weighed on the currency.
The 1-month non-deliverable forward indicated the rupee will open in the 90.72-90.76 range versus the U.S. dollar, having settled 0.1% weaker at 90.7575 on Monday.
The rupee dipped in Monday's session despite a mostly struggling dollar, with bankers attributing it to hedging activity and the usual local flows that worked against the currency.
The rupee has been in the 90.04–90.84 range since the US-India trade deal was announced about a week ago.
Price action over the past two sessions suggests that the initial enthusiasm to sell dollars — from both speculators and exporters — has eased, a currency trader at a bank said.
"Overall, a 90–91 range looks like a fair ballpark, with risks tilted towards 91 being taken out, while a sustained move below 90 appears highly unlikely," he said.
In a positive for the rupee, there are tentative signs of a turnaround in equity flows. Foreign investors bought about $250 million of Indian shares on Monday, according to preliminary data, taking total purchases for the month to around $1.5 billion. That contrasts with roughly $4 billion of outflows seen in January.
DOLLAR STRUGGLES AMID YUAN STRENGTH
The dollar index dropped 0.76% on Monday and dipped more in Tuesday's Asia session amid strength in the yuan and the Japanese yen.
The offshore Chinese yuan climbed to 6.9050 to the U.S. dollar, the highest level in two-and-a-half years.
Investor focus this week will be on U.S. employment and consumer price data, delayed slightly by the recently concluded three-day U.S. federal shutdown.
