Rupee to nudge higher, traders parse US-India interim trade framework
The Indian rupee is expected to kick off the new week on a modestly stronger note with traders parsing the details of an interim trade framework unveiled by India and the U.S., while watching for signs of a revival in foreign portfolio flows.
The 1-month non-deliverable forward indicated the rupee will open in the 90.49-90.53 range versus the U.S. dollar, having settled at 90.6550 on Friday.
New Delhi and Washington on Friday released an interim framework that would lower tariffs, reshape energy ties and deepen economic cooperation after a breakthrough in long-drawn negotiations was announced earlier last week, powering the rupee to its best weekly rise in over three years.
"Though component-level details are yet to be made available, after exclusions, we estimate the effective tariff rate imposed by the U.S. on Indian imports may be around 20 pp (percentage points) lower than the 34% earlier," analysts at Goldman Sachs said in a note.
The India-U.S. joint statement, though, did not mention India’s Russian oil purchases or a formal pledge from India to confirm that it will cease them.
The trade relief is expected to give breathing room to the rupee, which is down about 3.5% from the time tariffs went into effect in late August.
"The appetite to take on short rupee wagers diminished last week, going by the softness seen in NDF points and onshore market action," a trader at a Mumbai-based bank said.
Whether the rise extends past 90 depends on exporter activity and foreign portfolio flows, the trader added. Foreign investors have net bought about $900 million of local stocks in February so far, a turnaround from the $4 billion outflow last month.
Asian equity markets, meanwhile, leapt higher on Monday following a resounding win for Japanese Prime Minister Sanae Takaichi, while the Japanese yen was on the back foot.
KEY INDICATORS:
** One-month non-deliverable rupee forward at 90.61; onshore one-month forward premium at 12.75 paise
** Dollar index at 97.59
** Brent crude futures down 0.7% at $67.6 per barrel
** Ten-year U.S. note yield at 4.22%
** As per NSDL data, foreign investors sold a net $145.2mln worth of Indian shares on Feb. 5
** NSDL data shows foreign investors sold a net $2.6mln worth of Indian bonds on Feb. 5
