Rupee ends nearly flat; weak equities erode India-Pakistan truce-spurred rise

MUMBAI: The Indian rupee closed nearly flat on Tuesday as a fall in local equities and dollar bids from state-run banks ate into the currency’s early gains spurred by the cessation of military hostilities between India and Pakistan.

The rupee touched a peak of 84.6350 in early trading before ending at 85.33 against the U.S. dollar, nearly unchanged from its close at 85.37 on Friday.

The benchmark equity indexes, the BSE Sensex and Nifty 50, fell about 1.5% each on fears of foreign flows moving to China after its trade pact with U.S. and on profit booking after the previous day’s near 4% rally. India’s bond and currency markets were closed on Monday.

On Monday, U.S. and China announced an agreement to reduce reciprocal tariff reductions for the next three months.

Indian rupee likely to weaken more on widening India-Pakistan conflict

“A rally in China stocks might see modest near-term underperformance of India stocks,” Nomura said in a note, raising its allocation to Chinese equities to a “tactical overweight.”

The firm said that it maintains an overweight position on Indian equities but will fund its allocation to China by trimming exposure to India.

On the day, two traders also pointed to strong bids from state-run banks weighing on the rupee. A large state-run bank was persistently bidding for dollar, a trader at a mid-sized foreign bank said.

The offshore Chinese yuan was nearly flat after touching a six-month peak earlier in the session. The dollar index was slightly lower at 101.6 while U.S. bond yields dipped.

Investors await consumer price inflation data from India and the U.S. due later in the day.

While India’s April CPI is expected to have eased to a near six-year low of 3.27%, month-on-month core U.S. CPI likely rose to 0.3%, according to economists polled by Reuters.