The rupee closed at 84.4325 against the U.S. dollar, down 0.2% on the day.
The offshore Chinese yuan retreated from a near six-month high hit on Monday on signs that the country’s central bank may be unwilling to allow rapid appreciation amid sharp rallies seen in other Asian currencies – most prominently, the Taiwanese dollar.
The dollar index was down 0.1% at 99.7 while India’s benchmark equity indexes, the BSE Sensex and Nifty 50 ended slightly in the red.
Traders pointed to dollar bids from at least two U.S. based banks alongside routine importer hedging demand among factors that weighed on the rupee on Tuesday.
With the dollar nursing losses of 8% against major peers this year on the back of heightened policy uncertainty, carry trades on emerging market currencies could benefit, per analysts at BofA. Carry investors borrow money from economies with low interest rates to fund investments in higher-yielding assets. BofA reckons that pairing currencies like the Indian rupee and Brazilian real against shorting lower yielding currencies such as Thai baht or Singaporean dollar is also an “appealing relative carry-value strategy.”
The Federal Reserve’s policy decision due on Wednesday is focus this week, where the central bank is widely expected to keep rates steady but the attention will be on how policymakers are likely to navigate the economic of tariffs.
Traders are currently pricing in 75 basis points of easing this year with the first move possible in July, as per LSEG data.
