By Jaspreet Kalra
MUMBAI (Reuters) – The Indian rupee closed nearly flat on Wednesday, trailing behind its Asian peers as the impact of a weaker U.S. dollar was blunted by strong demand for the greenback from foreign banks, likely on behalf of custodial clients.
The rupee closed at 85.6375 per dollar, compared to its previous close at 85.6350.
Other Asian currencies rose between 0.1% to 0.6% as the dollar index drooped to a two-week low before paring losses to last quote at 99.6.
The dollar has been weighed down by concerns about U.S. fiscal policy and fading optimism about cooling of trade tensions, as investors await details on signs of progress on trade talks.
“The tendency to add to USD short positions has been clear, even though the greenback remains notably undervalued against most G10 currencies when judged by short-term drivers such as rates and equity differentials,” ING Bank said in a note.
While this has helped boost most emerging market currencies, the rupee has been lagging amid strong local dollar demand, which traders reckon was spurred by immediate corporate payments and foreign portfolio outflows.
India’s benchmark equity indexes, the BSE Sensex and Nifty 50 closed higher by 0.5% each, pulling back from earlier gains of as much as 1%, while the benchmark 10-year bond yield edged lower.
Dollar-rupee forward premiums dipped, as U.S. bond yields stuck to their recent uptrend. The 1-year dollar-rupee implied yield eased to 2.02%, its lowest level in over two months.
Traders will keep an eye on remarks from Federal Reserve policymakers, news flow from the ongoing G7 meetings and developments on a U.S. tax-cut bill, which nonpartisan analysts say could add $3 trillion to $5 trillion to the U.S. debt.
(Reporting by Jaspreet Kalra; Editing by Varun H K)
