MUMBAI (Reuters) – The Indian rupee is likely to rally at open on Friday, lifted by the dollar's slump likely triggered by investors exiting from U.S. assets amid mounting U.S. and China trade frictions.
The 1-month non-deliverable forward indicated that the rupee will open at 86.18 to 86.20 against the U.S. dollar compared with 86.6875 on Wednesday. India's financial markets were off on Thursday.
The dollar's slide “will obviously” lend support to the rupee at open, an FX spot trader at a Mumbai-based bank said. It is, however, unlikely that the Indian currency will manage to move past 86, he said.
The dollar index slumped 1.94% on Thursday, its biggest single-day fall in over two years, and extended losses during Asian hours, slipping below the key 100 mark.
Investors exited U.S. equities on Thursday, reversing a portion of the relief rally sparked by President Donald Trump pausing higher tariff rates on countries other than China. The sell-off extended to longer-dated U.S. Treasuries, with the 10-year yield poised for its biggest weekly rise in more than two decades.
Markets are clearly punishing U.S. assets again and the dollar is near a “confidence crisis”, ING Bank said in a note.
“The ‘sell America' scenario is becoming tangible again with Treasuries and U.S. equities under pressure. That can be a very toxic combination for the dollar,” ING said.
Trump ramping up the tariff battle with China was among the key reasons analysts cited for reducing exposure to U.S. assets. Markets probably feel that the lack of immediate substitutes for some Chinese products means higher inflationary and recessionary risks for the U.S., ING Bank said.
Trump has raised tariffs on Chinese imports to an effective rate of 145%, further intensifying the high-stakes trade confrontation between the world’s two largest economies.
KEY INDICATORS:
** One-month non-deliverable rupee forward at 86.40; onshore one-month forward premium at 18.5 paise
** Dollar index down at 100.22
** Brent crude futures down 0.6% at $63 per barrel
** Ten-year U.S. note yield rises to 4.46%
** As per NSDL data, foreign investors sold a net $544 million worth of Indian shares on April 8
** NSDL data shows foreign investors sold a net $135 million worth of Indian bonds on April 9
(Reporting by Nimesh Vora; Editing by Mrigank Dhaniwala)
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