Dollar demand linked to undeliverable positions in the non-deliverable futures market, corporate hedging and modest portfolio inflows were among the factors impacting the rupee on Wednesday, traders said.
Before building positions in either direction, market participants are trying to calibrate for the new ranges the currency could settle in after a sharp rally fueled by the announcement of a trade deal with the US, a trader at a foreign bank said.
The US-India trade deal has brought relief to what was once a battered rupee and should give a pause to the relentless overseas selling of local equities, investors say, adding that earnings growth needs to recover and fundamentals need to improve for sustainable buying.
The trade deal is positive for the rupee in the short term, but Indian authorities must “walk the fine line between supporting the currency when needed and providing longer-term rationale for domestic and international investment,” said John Ewart, investment manager at Aubrey Capital Management.
While the company is positive about India in the long term, it currently has no plans to expand its market positions, Ewart said. Bank of America, meanwhile, expects the Indian rupee to rise to 88.60-89 per dollar by the end of March, about 2% higher than the bank’s forecast before the trade deal was announced.
In global markets, the dollar index was little changed, while Asian shares traded broadly steady, gaining some balance after a global sell-off in information technology stocks spread across the region, including a nearly 6% drop in Indian IT stocks on Wednesday.
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