Rupee slips, volatility expectations unruffled by looming tariff deadline
The rupee closed at 85.7025 against the U.S. dollar, down 0.2% on the day.
Asian currencies declined as well, led by the Malaysian ringgit, which fell 0.7%. The dollar index was up nearly 0.3% and hovering just shy of the 97 handle.
Stronger-than-expected U.S. economic data released on Tuesday offered mild support to the greenback with investors now awaiting a key non-farm payrolls report on Thursday and developments on bilateral trade negotiations.
Despite the looming trade deadline, the rupee's very near-tenor implied volatility, a gauge of future expectations, was hovering a tad below its three-month average, indicating that traders are not yet pricing in the possibility of sharp swings in the near-term.
U.S. President Donald Trump has said he was not considering extending the deadline for countries to negotiate trade deals but expects an agreement will be reached with India.
While Trump has ruled out an extension of the deadline, "markets are wary of taking this at face value given recent reversals," ING said in a note.
"The prevailing view may be that global tariff threats peak before another last-minute reprieve," ING said.
Analysts polled by Reuters expect the rupee to be largely rangebound over the next year, trailing Asian peers amidst sustained weakness in the dollar.
In three months, the rupee is forecast to decline 0.1% from current levels to 85.75 per dollar. It is then expected to trade at 85.50 in six months and weaken marginally to 86.13 in a year, according to the median forecast of 41 FX strategists.
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