By Jaspreet Kalra
MUMBAI (Reuters) – The Indian rupee was marginally stronger on Tuesday and dollar-rupee forward premiums ticked up as concerns over the economic fallout of U.S. President Donald Trump’s trade war drove U.S. Treasury yields, the greenback and crude oil prices lower.
The rupee ticked up to 86.2650 per U.S. dollar by 11:10 a.m. IST, slightly higher than its close at 86.2925 in the previous session.
The dollar index was steady at 97.9 in Asia trading after falling 0.6% on Monday, tracking a decline in U.S. Treasury yields that saw the 10-year yield touch a near two-week low of about 4.35%.
Short-term U.S. Treasury yields declined as well, which helped boost far-tenor dollar-rupee forward premiums.
The 1-year dollar rupee implied yield rose to an over two-week high of 2.03%, while a fall in rupee liquidity in the banking system helped lift very near-tenor dollar-rupee swap rates.
Indian assets largely sidestepped a media report that a trade deal between India and the U.S. is unlikely before August 1 with equities and the rupee clinging to slight gains while the yield on the benchmark 10-year bond was little changed.
Steep reciprocal levies on exports to the U.S. are slated to go into effect next month with India likely to face a 26% charge in the absence of a deal.
“The rupee’s trajectory remains tilted toward further weakness, with both the 86.00 and 86.20 levels now breached. This opens the door for a move toward 86.50–86.80,” said Amit Pabari, managing director at FX advisory firm CR Forex.
In addition to uncertainty on global trade dynamics, muted foreign portfolio flows have also been a sore point for the rupee.
Overseas investors have net sold about half a billion dollars of local stocks in July so far while year-to-date outflows stand at nearly $9.5 billion.
(Reporting by Jaspreet Kalra; Editing by Ronojoy Mazumdar)
