By Jaspreet Kalra
MUMBAI(Reuters) – The Indian rupee edged up on Tuesday, tracking gains in most Asian peers, as the dollar index dipped ahead of a key U.S. inflation reading, which is expected to provide cues on the Federal Reserve’s monetary direction.
The rupee closed at 85.81 against the U.S. dollar, up 0.2% on the day.
While the local currency fleetingly fell below the 86 handle in the previous session, its quick recovery also prompted short wagers on the currency to be liquidated, adding to its upward momentum, traders said.
The rupee’s range-bound behaviour over the last two weeks has also sparked interest in selling short-term volatility among large corporates and interbank participants, bankers said.
The dollar index was down 0.2% at 97.9, with most Asian currencies rising, while the offshore Chinese yuan was little changed.
“We expect INR to trade with a strengthening bias in the near term, unless India gets hit by higher tariffs compared to the region,” ING said in a note.
India is among the few large U.S. trading partners yet to receive a letter from the White House on a country-specific tariff rate. Negotiations between the two nations for a trade deal are currently ongoing.
ING expects the rupee to trade at 86.50 against the U.S. dollar in 6 months and decline to 88 in a year’s time. The rupee had hit its all-time low of 87.95 in February this year.
Data released on Tuesday showed that India’s merchandise trade deficit in June was narrower-than-expected at $18.78 billion.
Meanwhile, dollar-rupee forward premiums ticked up ahead of the release of U.S. consumer inflation data later in the day.
Economists polled by Reuters have forecast the month-on-month core U.S. CPI to rise 0.3% in June, up from 0.1% in May.
The odds of a rate cut by the Federal Reserve in July are under 5%, while September odds are a tad above 60%, as per CME’s FedWatch tool.
(Reporting by Jaspreet Kalra; Editing by Vijay Kishore)
