Rupee weakens amid yuan slide, potential equity outflows, trade concerns

The Indian rupee ended lower at the start of the week, weighed down by a drop in the Chinese yuan amid concerns over US President Donald Trump's trade tariffs and likely equity outflows. 

The rupee ended at 86.3425 to the US dollar on Monday, down from 86.2050 at the previous close. 

The onshore Chinese yuan dipped 0.3 per cent on Monday after Trump threatened tariffs and sanctions on Colombia over the weekend to punish it for earlier refusing to accept military flights carrying deportees as part of his sweeping immigration crackdown. 

However, in a statement late on Sunday, the White House said Colombia had agreed to accept the migrants after all and Washington would not impose its threatened penalties. 

"Trump's threat through tariffs and sanctions will concern global trade, and keep emerging market currencies, and thereby the rupee under pressure," said Jigar Trivedi, a senior analyst at Reliance Securities. 

The latest forex reserves data signals that the Indian central bank is interfering in the spot market, but the effect continues to be "short-lived" given the weak macro environment, Trivedi added. 

A decline in Indian equities also weighed on the rupee. 

Foreign investors have sold Indian stocks worth $7.5 billion so far this month. 

Investors' focus will be the Federal Reserve's policy this week. The Fed is widely expected to make no changes to the policy rate and no new projections on inflation and rates are due at this meeting. 

Wednesday's Fed outcome should not prove a negative event risk for the dollar as US activity data has been pretty strong, ING Bank said in a note. 

The bigger risk to the dollar could come from Friday's release of December's core PCE inflation reading, the bank said.

India's federal budget announcement, due on Feb. 1, will also be eyed for measures to stimulate growth.  (Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)