Indian rupee likely to dip on weak risk, outflows; Middle East tensions flare

MUMBAI: The Indian rupee is poised to open weaker on Wednesday, with a subdued risk environment dampening sentiment while steady dollar demand ​from equity outflows and importer payments keeps the currency under pressure.

The ‌Indian rupee is expected to open in the 95.40 to 95.44 per dollar range, per traders, after settling at 95.35 on Tuesday.

The currency, which rallied on Friday after ​the Reserve Bank of India rolled out measures to attract inflows, ​has since lost momentum on persistent dollar demand from importers ⁠and equity outflows, bankers said.

The rupee is now only about 0.2% ​above its level before the measures were announced, indicating limited follow-through from the ​central bank’s steps.

Foreign investors have offloaded over $6 billion of Indian equities so far this month, surpassing the outflows in all of last month.

RBI’s measures have re-based the USD/INR ​range lower, with talk of room for a fall to the ​93 to 94 level, a currency trader at a bank said.

However, oil, hedging and equity ‌outflows ⁠remain overhangs for the rupee, he added.

Soft asian cues

Asian equities extended losses alongside U.S. equity futures, while most regional currencies weakened. Oil prices rose, souring appetite for risk assets.

Rising tensions in the Middle East have eroded ​optimism that the ​months-long conflict might ⁠ease anytime soon, pushing oil higher.

The US carried out strikes on Iran, following President Donald Trump’s statement that ​Tehran had downed a US helicopter in the Strait ​of Hormuz, ⁠adding to unease around an already fragile ceasefire.

US inflation test

US May inflation data, due later in the day, comes against a backdrop of expectations that ⁠the Federal ​Reserve will raise rates this year.

Markets are ​now fully pricing in a 25-basis-point hike in December, a significant shift from pre-conflict expectations ​of two rate cuts this year.