Pause in dollar rally offers relief to rupee after 86 breach

The Indian rupee is expected to open stronger on Friday, supported by gains in other Asian currencies and a temporary pause in the U.S. dollar index’s upward trend.

The one-month non-deliverable forward suggests an opening in the 86.00–86.02 range, compared to Thursday’s close at 86.0750- the rupee’s first close below 86 in nearly a month.

A currency trader at a bank noted that while the rupee may gain at the open due to regional strength, any drop in USD/INR should be viewed as a buying opportunity, citing favourable risk-reward conditions and market positioning.

The U.S. dollar index eased by 0.2% in Asian trading to 98.40, boosting most Asian currencies. This follows a sharp rally on Thursday that brought the index close to 99, driven by strong U.S. economic data, including robust June retail sales and a three-month low in jobless claims, which reinforced the narrative of a resilient labour market.

MUFG Bank commented that the U.S. data continues to reflect economic strength, although U.S. Treasury yields remained mostly flat. Markets remained steady in their expectations regarding future rate cuts by the Federal Reserve, with little change in projections for a potential rate cut in September or the total expected in 2025.

Even with Friday’s dip, the dollar index is up 0.6% for the week, following a nearly 1% gain the previous week. MUFG Bank added that persistent short positions on the U.S. dollar could reverse and provide further support to the currency.

Key indicators:

- One-month non-deliverable rupee forward at 86.08

- Onshore one-month forward premium at 10 paise

- Dollar index at 98.41

- Brent crude down 0.1% to $69.50 per barrel

- U.S. 10-year Treasury yield at 4.44%

- Foreign investors sold $121.3 million in Indian equities on July 16 (NSDL data)

- Foreign investors bought $3.5 million in Indian bonds on the same day (NSDL data)

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