Rupee likely to remain on backfoot as Asia FX dip, inflows dwindle
The 1-month non-deliverable forward indicated a flat-to-slightly-weaker open on Monday from 86.1475 in the previous session. The rupee has slipped near to 1% in the last two weeks and now hovers near its lowest level in almost a month.
With the dollar/rupee pair "having clipped past 86, it looks like we're in a slow push higher," said a currency trader at a Mumbai-based bank.
"Right now, I don't see anything that could meaningfully turn the rupee around. The U.S.-India trade deal is one factor, though expectations of India making a relatively favourable one are fading.'
Bankers said importers have been actively buying dollars for payments and short-term hedging, while foreign portfolio investor flows have remained muted. Offshore investors have pulled out more than $600 million from Indian equities so far this month, after pumping in nearly $4 billion during May and June.
Market participants are keeping an eye on headlines around the U.S.-India trade deal, though most reckon it's unlikely to offer much support to the rupee.
The pause in the dollar's downtrend is adding to the pressure on the rupee. The dollar index climbed 0.6% last week, extending its nearly 1% rally from the previous week.
The dollar index was hovering near 98.50 on Monday, while Asian currencies were mostly weaker. Market focus remains on U.S. President Donald Trump's tariff announcements ahead of the August 1 deadline.
Other key events this week include the European Central Bank's rate decision and China–European Union summit.
"A wait-and-see approach remains the most probable course of action for the ECB next week. With the next potential tariff escalation not expected until August 1, there's little reason for a pre-emptive rate cut now," ING Bank said in a note.
KEY INDICATORS:
** One-month non-deliverable rupee forward at 86.28; onshore one-month forward premium at 10.25 paisa
** Dollar index at 98.48
** Brent crude futures at $69.3 per barrel
** Ten-year U.S. note yield at 4.42%
** As per NSDL data, foreign investors sold a net $333.4 million worth of Indian shares on July 17
** NSDL data shows foreign investors bought a net $38.7 million worth of Indian bonds on July 17
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