The rupee is seen opening slightly stronger on Tuesday with broader Asian currencies, but traders say its underlying bias has weakened as importer demand, arbitrage-related flows and Fed expectations keep pressure on the currency.
The Indian rupee is expected to open modestly higher on Tuesday in the 95.34-95.38 range after closing at 95.3950, supported by gains in most Asian currencies and a softer dollar following a weaker-than-expected U.S. June jobs report. Even so, traders say the currency's underlying tone has deteriorated markedly after it lost more than 1% over the last six sessions and slipped near 95.50 on Monday for the first time in a month. The recent recovery toward 94 per U.S. dollar, aided by lower oil prices and Reserve Bank of India steps to attract dollar inflows, now appears to have run its course. Market participants say routine importer demand, expectations that the Federal Reserve could still raise rates later this year, and arbitrage-related flows tied to the gap between offshore non-deliverable forwards and the onshore market have kept the rupee on the defensive. The currency's inability to benefit meaningfully from the latest pullback in the dollar index has added to concern. Traders expect the rupee to look to RBI support to limit further depreciation, with the central bank having sold dollars at multiple levels and possibly intervening through state-run banks near 95.50 in Monday's session. Investors are also watching the minutes of the Federal Reserve's June 16-17 meeting on Wednesday for further signals on the U.S. rate outlook.