Indian rupee dips, traders gauge fresh terrain after trade deal rally

MUMBAI: The Indian rupee ended modestly weaker on Wednesday, as companies hedged their dollar exposures and as traders assessed the stronger outlook for the Asian currency a day after a trade deal with the U.S. led to its sharpest rally in over 7 years.

The Indian rupee settled at 90.4350 per dollar, down 0.2% from its close at 90.2650 in the previous session.

Dollar demand related to maturing positions in the non-deliverable forwards market, corporate hedging and modest portfolio inflows were among the factors that influenced the Indian rupee on Wednesday, traders said.

Before building positions in either direction, market participants are trying to calibrate for the fresh ranges the currency may settle into after a sharp rally spurred by the announcement of a trade deal with the U.S., a trader at a foreign bank said.

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The U.S.-India trade deal has brought relief to what was a battered Indian rupee and should bring a pause to relentless foreign selling of local stocks, investors say, while adding that earnings growth must rebound and fundamentals improve for sustained buying.

The trade deal is positive for the Indian rupee in the near-term but Indian authorities must “tread that fine line between supporting the currency when required and providing longer term reasons for domestic and international investment,” said John Ewart, investment manager at Aubrey Capital Management.

While the firm holds a positive view on India over the long term, it doesn’t currently plan to add to its positions in the market, Ewart said.

Bank of America, meanwhile, expects the Indian rupee to strengthen to 88.60-89 per dollar by the end of March, about 2% higher than the bank’s forecast before the trade deal was announced.

In global markets, the dollar index was little changed, while Asian stocks traded largely steady, gaining some poiseafter a worldwide selloff in information technology stocks spilled over into the region, including a near 6% drop in India’s IT stocks on Wednesday.