Indian rupee under pressure from outflows, Asia weakness; report on tax relief may support

MUMBAI: The Indian rupee is seen opening slightly weaker on Thursday, pressured by equity outflows and soft Asian cues, while expectation around steps to support the currency may offer relief.

The Indian rupee is expected to open in 95.74-95.78 range, per traders, having settled at 95.7050 on Wednesday.

After staging a brief relief rally to the 94.70 level, the currency has come under renewed pressure.

A pickup in equity outflows and fading hopes of a US-Iran detente have put the rupee back on the back foot.

A prolonged war in the Middle East is a key risk for net energy importer India.

Foreign investors pulled nearly $600 million from Indian equities on Wednesday, per preliminary data, after about $3 billion of outflows in the prior three days.

The pace of June outflows has already nearly matched May’s total.

The combination of equity outflows and what appears to be the most serious flare-up since the US-Iran ceasefire reignited the uptrend in dollar/rupee, a currency trader at a private sector bank said.

The rupee, however, may be supported by expectations of measures to bolster the currency amid the fallout from the US-Iran conflict, the possibility of which has been speculated over by market participants for several weeks.

India is set to remove capital gains tax on foreign portfolio investments in government securities to attract overseas capital, The Economic Times reported on Thursday.

Meanwhile, most Asian currencies weakened and regional equities slipped.

Renewed US-Iran fighting rattled risk assets, while mixed signals on de-escalation kept investors wary.

Israel and Lebanon agreeing a ceasefire could potentially open the door for talks to advance, ING Bank said in a note, pointing out that Iran has been adamant that any ceasefire with the US is dependent on a halt in fighting in Lebanon.