MUMBAI: The Indian rupee declined to its weakest level since mid-March in early trade on Tuesday, as a slump in the euro sharply raised the dollar index, and demand for the greenback from state-run banks added to the pressure.
The rupee hit a low of 86.9150 against the U.S. dollar before paring losses to 86.8725, down 0.2% on the day, as of 11:10 a.m. IST.
In recent sessions, the Indian currency has also been troubled by persistent outflows from local equities, amid a tepid quarterly earnings season, alongside muted prospects of a U.S.-India trade deal ahead of the August 1 deadline.
While India is still awaiting concrete developments in negotiations, sentiment surrounding a deal between the EuropeanUnion and the U.S. turned sour with leaders in France and Germany lamenting the outcome.
The euro was last quoted a tad lower at 1.1584 after falling more than 1% against the dollar on Monday. Asian currencies, meanwhile, were moderately weaker between 0.2% and 0.4%.
“With net short dollar positions looking crowded and easing, the U.S. dollar could get some reprieve in the near term,” MUFG said in a note.
Indian rupee slips but sidesteps firmer dollar as flows dominate price-action
But the focus will also be on the Federal Reserve’s policy decision due on Wednesday wherein a dovish tilt could lead to renewed U.S. dollar weakness, supporting the broader Asian FX outlook, the note added.
On the day, traders also pointed to an uptick in very-near tenor dollar-rupee swap rates spurred by anticipation of IPO-related cash dollar inflows alongside maturity of the Reserve Bank of India’s forward dollar positions at the end of the month.
The spot-week USD/INR swap rate, for instance, was quoting at an implied rate of about 0.60 paisa per day, well above the prevailing overnight swap rate of about 0.30 paisa.
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