Mild gains in regional peers may help Indian rupee, but importers likely to cap gains

MUMBAI: The Indian rupee is expected to open flat-to-slightly-higher on Monday, comforted by modest gains in regional peers and as the dollar hovers near a 5-month low against major peers, pressured by erratic U.S. trade policies and soft macroeconomic data.

The one-month non-deliverable forward indicates that the rupee will open at around 86.96-86.97 to the U.S. dollar, compared with its previous close of 86.9975.

Other Asian currencies were mostly up between 0.1% to 0.3%, while the dollar index was marginally lower at 103.7. Data on Friday showed U.S. consumer sentiment plunged to an over 2-year low in March and inflation expectations soared amid worries about the impact of U.S. President Donald Trump’s sweeping tariffs.

The dollar index has declined about 6% from its year-to-date peak hit in January as hopes of a growth boost from Trump’s polices gave way to fears about a potential recession in the world’s largest economy.

In this backdrop, the focus this week will be on the Federal Reserve’s monetary policy decision and commentary about the impact of policy changes under the Trump administration.

Indian rupee seen steady as tariff worries blunt US inflation comfort

“A reduction in market expectations for U.S. rate cuts - currently priced at slightly less than 3 rate cuts in the rest of this year - could provide additional U.S. dollar support at the expense of Asian currencies,” MUFG Bank said in a note.

Meanwhile, traders reckon that importers are likely to continue lapping up favourable moves in the dollar-rupee pair, which could potentially limit gains in the currency.

There is “strong appetite to buy dips below 87 (on USD/INR) among importer clients,” a trader at a private bank said.

Alongside dollar demand spurred by importers’ hedging requirements, portfolio flows will also be in focus for the rupee.

Overseas investors have net sold nearly $3.5 billion of local stocks in March so far, taking the tally this year to over $16 billion.