India-Pakistan truce, yuan boost to lift rupee past 85/USD
MUMBAI, May 13 (Reuters) – The Indian rupee is expected to appreciate past the 85 mark against the U.S. dollar at the open on Tuesday, supported by the India-Pakistan truce and a rally in the Chinese yuan on the back of the U.S.-China trade agreement.
The 1-month non-deliverable forward indicated that the rupee will open at 84.70-84.75 to the U.S. dollar compared with 85.37 on Friday. India’s forex and money markets were off on Monday.
The rupee experienced significant volatility last week, with traders reacting to news surrounding the India-Pakistan conflict. The Indian currency fluctuated within the 84.12-85.84 range, with the Reserve Bank of India likely intervening on Friday to provide support.
“This week is expected to be less turbulent,” said a currency trader at a Mumbai-based bank.
“I expect the rupee to rally to at least the 84.30-84.40 region, especially with positive developments on the U.S.-China front complementing the good news (about) India and Pakistan.”
India and Pakistan agreed to a ceasefire on Saturday following four days of cross-border strikes and retaliatory attacks. Although there were violations in the immediate aftermath, the truce has held since then.
Indian equities soared on Monday, logging their best day in more than four years.
US-CHINA PACT LIFTS YUAN
The temporary pause in the U.S.-China trade war boosted Asian currencies and equities, alleviating worries of an economic slowdown.
Following talks, both sides agreed that the U.S. would drop levies on Chinese imports from 145% to 30% during a 90-day negotiation period and that China would cut duties from 125% to 10%. The offshore Chinese yuan rose past 7.18 to the U.S. dollar, a six-month high.
“In the short term, this 90-day reprieve increases optimism that the worst-case outcome (U.S. stagflation) will be avoided,” ANZ Bank said in a note.
U.S. equities rallied Monday, yields rose, and the dollar advanced against its major peers.
KEY INDICATORS:
** One-month non-deliverable rupee forward at 84.94; onshore one-month forward premium at 18.75 paise
** Dollar index at 101.62, rallied 1.3% on Monday ** Brent crude futures down 0.3% at $64.7 per barrel ** Ten-year U.S. note yield at 4.45%
** As per NSDL data, foreign investors bought a net $286 million worth of Indian shares on May. 8
** NSDL data shows foreign investors sold a net $64.5 million worth of Indian bonds on May. 8