Indian rupee may cling to subdued rhythm, improved portfolio inflows lend support

According to Business Recorder, the Indian rupee is likely to stay in a muted band on Tuesday, as traders expect the central bank to step in against currency weakness. The unit closed Monday at 95.7450 to the dollar, and traders see it opening between 95.70 and 95.75. A gradual rise in overseas portfolio inflows is also seen providing some cushion.

Persistent intervention by the central bank has kept the rupee among the least volatile Asian currencies over the past fortnight, confining it to a span of less than 30 paisa between 95.45 and 95.75. Corporate demand for hedging and periodic expiries of derivative contracts continue to weigh on the currency, while oil prices remain high. A dealer at a state-run lender expects similar conditions to persist in the near term, with corporate buying cushioning declines and the RBI limiting gains.

Foreign investors have net bought over $2.5 billion of Indian equities in August so far, up from $2.1 billion last month, reversing four months of outflows that totalled nearly $28 billion. Other Asian currencies were little changed as the dollar gave back some gains after Washington widened Iran-related sanctions. MUFG said in a note that geoeconomic fragmentation makes it sensible for nations to diversify reserves and trade links rather than rely on one system, including the dollar-based one.