MUMBAI: The Indian rupee closed marginally weaker on Wednesday, troubled by portfolio outflows and routine hedging demand from local importers, while intermittent dollar sales from state-run banks cushioned the currency’s fall.
The rupee closed at 89.27 against the U.S. dollar, marginally weaker than its previous close of 89.22.
Growing expectations of a December rate cut by the U.S. Federal Reserve helped boost global equities, with India’s benchmark equity indexes, the BSE Sensex and Nifty 50, posting gains of more than 1% – the most in a day since June.
However, the positive cues did little to help the rupee, with traders pointing to outflows even as dollar sales from state-run banks limited the rupee’s decline, traders said.
“The market is clearly looking to go long and every dip (on USD/INR) is being bought,” FX advisory firm IFA Global said in a note.
The dollar index lingered near a one-week low while the offshore Chinese yuan touched a 13-month high after the country’s central bank guided the market higher in tandem with a weaker U.S. currency.
Against the rupee, the yuan hovered near its all-time high of 12.60 hit last week.
Persistent worries over steep U.S. trade tariffs and a negative skew in trade and portfolio flows have contributed to pushing the local currency down by about 4% against the U.S. dollar and over 7% against the yuan this year.
Meanwhile, dollar-rupee far forward premiums nudged higher, with the 1-year implied yield a tad higher at 2.21%, hovering near a monthly peak.
With growing certainty about a Fed cut next month, traders reckon the trajectory for far forward premiums will depend more on the Reserve Bank of India’s policy decision due on December 5.
RBI Governor Sanjay Malhotra said in an interview on Monday that there was scope to further reduce policy interest rates but the timing would depend on the rate setting panel.
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