MUMBAI(Reuters) – The Indian rupee weakened on Thursday on the back of dollar bids from foreign banks and a broadly stronger greenback, after U.S. President Donald Trump continued to up the ante on tariffs by announcing a 35% levy on Canadian imports starting August 1.
Traders also pointed to modest portfolio outflows, which contributed to pushing the rupee down to 85.8650 as of 11:30 a.m. IST, down nearly 0.3% on the day.
India’s benchmark equity gauge, the Nifty 50, fell 0.7%, while the country’s benchmark 10-year bond was also nursing a modest decline.
Asian currencies were trading mixed, with the Chinese yuan edging higher after a stronger-than-expected midpoint fix by the country’s central bank.
Trump also said he plans to impose tariffs of 15% or 20% on most other trading partners and that the European Union could receive a letter declaring the applicable rate by Friday.
While market reaction to tariff threats has become more subdued compared to earlier in the year, analysts reckon that the uncertainty may continue to dampen risk appetite.
“Given the current backdrop, the bias for rupee appreciation remains limited. Support near 85.50 continues to hold strong, with a high probability of the pair inching back towards 86.00,” said Amit Pabari, managing director at FX advisory firm CR Forex.
On the day, the dollar-rupee fix was quoting at a modest premium of around 0.2/0.3 paisa, signalling heightened appetite to buy dollars at the daily reference rate.
Dollar sales by a large state-run bank around the 85.90 level, though, helped limit the rupee’s losses, a trader at a private bank said.
Meanwhile, dollar-rupee forward premiums nudged higher with the 1-year implied yield up 3 basis points at 1.98%, while the 1-month forward premium ticked up to 11.25 paisa.
The Reserve Bank of India’s aggressive turn towards withdrawing liquidity exerted upward pressure on near-forward premiums, a trader at a Mumbai-based bank said.
(Reporting by Jaspreet Kalra; Editing by Vijay Kishore)
