MUMBAI: The Indian rupee is set to weaken on Tuesday after comments from Pakistan’s defence minister warning of an imminent military incursion by New Delhi raised concerns about a further increase in tensions between the two neighbours.
This comes after a deadly militant attack on tourists in Kashmir last week, for which India has blamed Pakistan.
The 1-month non-deliverable forward indicated that the rupee will open at 85.12-85.16 to the U.S. dollar compared with 85.03 in the previous session.
Following the remarks by the Pakistan official late on Monday, the 1-month USD/INR NDF briefly touched 85.50 before pulling back amid a weaker U.S. dollar.
Indian rupee falls amid rising tensions with Pakistan after Kashmir attack
The rupee’s losses would have been bigger if not for the weaker dollar, a currency trader at a bank said. Headline risk for the domestic unit has increased significantly and that likely means interbank players will lighten up their positions.
The rupee and Indian equities rallied on Monday, suggesting that both markets had not priced in a further escalation in India-Pakistan tensions.
Dollar struggles
The dollar index dropped 0.7% on Monday near the 99 mark amid worries over the U.S.-China trade war.
U.S. Treasury Secretary Scott Bessent said in an interview that it was up to China to de-escalate on tariffs, adding to a series of conflicting signals on the status of trade negotiations between the world’s largest economies.
In a positive development for the rupee, Bessent said one of the first tariff deals could be reached with India.
“Thus far, India seems to have come out on top both in terms of relative tariff differentials with China and its key export competitors such as Vietnam, and in terms of the speed of trade negotiations with the US on a potential trade deal,” MUFG Bank said in a note.
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