Weak dollar may boost rupee at open after hedging-fuelled slide past 88

MUMBAI: The Indian rupee is likely to inch higher at open on Tuesday, boosted by a weaker dollar, though the upside may be modest after hedging flows and position unwinding pushed the currency past the 88 mark.

The 1-month non-deliverable forward indicated the rupee will open in the 88.20-88.22 range versus the U.S. dollar, having settled Monday at 88.2450.

Short dollar bets, importer hedging and a large outflow drove the rupee beyond the 88 mark in the last session, when the domestic currency logged its worst day in a month.

The breach was significant since the Reserve Bank of India had offered support around that level via state-run banks, currency traders said.

“The break of 88 changes the near-term and the range and the bias (on dollar/rupee) tilts higher for now,” said a FX spot trader at a private bank.

Import demand remains “heavy”, so any downside on pair due to the soft dollar “looks difficult”, he added.

The dollar index slipped on Monday and extended losses in Asia, while the offshore yuan advanced with investors watching U.S. President Donald Trump’s Asia visit for signs of a breakthrough in trade talks with China.

Senior Chinese and U.S. officials have agreed on a deal framework in the lead up to a meeting between Trump and Chinese President Xi Jinping on Thursday, U.S. officials said.

Overnight, U.S. equities rallied on optimism over a potential U.S.-China deal.

Meanwhile, the Federal Reserve is poised to cut rates again on Wednesday amid muted inflation and a cooling labour market. A 25-basis-points rate cut is fully priced in.

“The focus (is) on the accompanying statement and Fed Chair (Jerome) Powell’s press conference. We expect Powell to signal a cautious, meeting-by-meeting approach to further cuts,” ANZ Bank said.