Indian rupee poised to hold firm despite softer risk tone and dollar strength

MUMBAI: The Indian rupee is largely expected to ignore weak risk appetite globally and a firm dollar at open on Tuesday, with traders expecting the currency to remained anchored to familiar ranges.

The 1-month non-deliverable forward indicated the rupee will open in the 88.60-88.62 range versus the U.S. dollar, having settled at 88.61 on Monday.

Asian currencies slipped on Tuesday, extending the previous day’s losses with weak risk appetite keeping investors on the defensive.

A roughly 1% drop in U.S. equities on Monday boosted demand for the safe-haven dollar.

Regional equities tracked the U.S. slide, led by Japan and Australia.

“It’s not really a surprise the rupee is doing its own thing — that’s been the pattern for a while, with external cues only feeding through in a very limited way,” a currency trader at a private sector bank said. “The RBI’s hand has conditioned the market to expect a contained range,” he added.

The central bank’s defence of the 88.80 zone has been a constant feature in recent sessions, effectively preventing a break lower in the rupee. Yet the currency hasn’t shown much follow-through on the higher side either, leading to a prolonged spell of rangebound moves.

India’s historically high trade deficit, released on Monday, failed to move the needle on the rupee, barring a few paisa of intraday wobble.

“Rupee faces depreciation pressure from capital outflows and widening trade deficit”, Gaura Sen Gupta, economist at IDFC FIRST Bank said in a note.

Proactive RBI intervention and a timely trade deal could keep the rupee range-bound, while the failure to secure a US–India agreement would raise depreciation risks, she added.