By Jaspreet Kalra
MUMBAI (Reuters) – The Indian rupee and other Asian currencies extended their recent rallies on Monday, as abrupt shifts in U.S. trade policy and concerns over fiscal health kept the dollar under pressure.
The rupee rose past the 85 per U.S. dollar mark for the first time in two weeks on Monday, extending its 0.9% surge seen on Friday. The currency was last quoted up 0.4% at 84.82.
The dollar index was hovering at an over one-month low of 98.8, down 0.3% on day, after U.S. President Donald Trump set a July 9 deadline for a trade deal with the European Union after threatening a 50% tariff from June 1.
Meanwhile, the Chinese yuan’s rise to a 7-month high, following provided another tailwind to regional currencies. Asian currencies have risen by as much as 7% on the month so far but the rupee has remained a laggard with a 0.3% decline.
“Markets have also seemingly perceived that President Trump is looking for a weaker US dollar versus several Asian currencies as part of bilateral trade negotiations,” MUFG Bank said in a note.
“Any signs of FX discussion with the US could still be an upside risk to Asian currencies in the near term,” the note added.
Meanwhile, dollar-rupee forward premiums fell on Monday as the rupee extended its recent rally and near-tenor U.S. bond yields nudged higher.
The 1-year dollar-rupee implied yield dipped below the 2% handle for the first time in two months and was last quoted at 1.99%.
Uncertainty about future path of Federal Reserve policy rates alongside firm expectations of rate cuts by the Reserve Bank of India may continue to weigh on dollar-rupee forward premiums in the near-term, a trader at a bank said.
(Reporting by Jaspreet Kalra; Editing by Nivedita Bhattacharjee)
