MUMBAI: The Indian rupee’s spiral is likely to persist on Tuesday despite the mild recovery in its Asian peers and a pause in the dollar index’s rally.
The 1-month non-deliverable forward indicated that the rupee will open at 86.60 to the U.S. dollar, marking a new lifetime low and down from 86.5750 in the previous session.
Asian currencies nudged higher and the dollar index was at 109.64, easing after scaling 110 on Monday. Brent crude was just shy of $81, having rallied 8% this month so far.
The rupee slid 0.70% on Monday, the biggest drop in over two years and taking its decline to 1.1% this month.
Its demand has been hurt by the dollar’s overall strength in the lead-up to Donald Trump’s inauguration as U.S. president next week, the possibility of India’s central bank cutting rates next month to boost sluggish growth and an unexpected pickup in the currency’s volatility.
“Add to this the move higher in oil prices and it would seem that we will just keep moving higher (on dollar/rupee) pair,” a currency trader at a bank said.
“That obviously is not how things work. There will come a level, which I think is nearby, at which it no longer will make sense to long (buy dollar/rupee).”
The dollar’s direction over the next few weeks is likely to be dictated by the monthly U.S. inflation data due on Wednesday and what Trump does after he takes office on Jan. 20.
The dollar rallied significantly on Trump’s pledge that he would impose high tariffs on the country’s trading partners.
The extent to which Trump follows through will be a key for the dollar.
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