MUMBAI: The Indian rupee may look to extend its recent string of gains on Tuesday, as the dollar wallows near a 5-month low against its major peers amid fears of a slowdown in the world’s largest economy.
The one-month non-deliverable forward indicates that the rupee will open at around 86.75 to the US dollar compared with its previous close of 86.80.
The rupee has strengthened for three consecutive sessions on the back of a softer dollar and a pick up in exporters’ activity ahead of the end of India’s financial year on March 31.
Concerns about US President Donald Trump’s erratic trade policies have negatively impacted investors’ outlook on the United States and weighed on the dollar, which is down over 4% against major peers this month.
Indian rupee continues winning run
Softer economic data is starting to hint at the impact, with weaker-than-expected US retail sales data for February reported on Monday, after a survey last week showed that consumer sentiment sunk to a near 2-1/2-year low in March.
Meanwhile, India’s merchandise trade deficit narrowed sharply to a more than 3-year low of $14.05 billion last month as imports fell amid rising global uncertainty.
“While this number in itself is positive for the Indian Rupee if yesterday’s smaller trade deficit data is at least partly indicative of softer domestic demand trends in India, this may continue to weigh on equity and foreign capital inflows moving forward,” MUFG Bank said in a note.
Persistent outflows from local stocks have been a consistent drag on the local unit, with foreign portfolio investors having pulled out over $16.5 billion this year so far.
Expectations of rate cuts by the Indian central bank alongside uncertainty about the impact of reciprocal tariffs from the US are likely to keep the rupee biased lower with weakness likely to be more front-loaded in the first half of 2025, MUFG Bank said.
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