The local currency closed at 88.0525 per dollar against Monday’s close of 88.21/1$, tracking gains in Asian currencies. Positive local equity market, which ended higher, also buoyed sentiment for the rupee.
Meanwhile, the dollar fell to multi-month lows against currencies like the euro and Australian dollar with the dollar index falling below 97-mark during Asian trade. This is on the back of firmer expectation of a 25-basis point rate cut by the Federal Open Market Committee, post conclusion of its two-day meet on Wednesday. The decision will be detailed post India market hours.
Optimism also stemmed from a US trade delegation currently in India, with hopes mounting for progress on resolving lingering tariff disputes. The rupee, which last week hit a record low of 88.4425 per dollar, continues to underperform relative to its regional peers because of ongoing trade tensions with the US.
Currency dealers are also tracking movement in offshore Chinese yuan, which has been gaining ground as Beijing adopts a more flexible approach, allowing market forces to influence its value. Emerging market currencies stand to gain from stronger yuan.
A Bloomberg analysis shows that over the past year, for every 1% yuan move, the Thai baht, Malaysian ringgit, Chilean peso, Mexican peso and Brazilian real have moved closely in tandem.“Improved risk sentiment (on hopes of U.S. rate cuts) supports “riskier” Asian currencies. But there’s caution — sticky inflation in many places, geopolitical tensions, and Chinese growth worries limit how far gains go,” said Finrex Treasury Advisors.
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