Rupee at risk of all-time low after Trump ups tariff threat on India

The Indian rupee may drop past 88 to the US dollar to an all-time low on Tuesday after US President Donald Trump threatened steeper tariffs on Indian goods, worsening fragile sentiment and stoking concerns of more foreign outflows.

The 1-month non-deliverable forward indicated the rupee will open in the 88.00 to 88.04 range versus the US dollar, down from 87.6550 on Monday. The rupee's previous record low was 87.95, touched in February. 

 

Trump again threatened to substantially raise tariffs on Indian goods, citing India's continued purchases and resale of Russian oil. India's foreign ministry responded, saying it will take all necessary steps to protect its national interests and economic security.

"Whether these barrage of comments are mainly negotiating tactics against India to partly prod for changes in the Russia-Ukraine war remains to be seen," MUFG Bank said in a note.

Trump had already imposed higher-than-expected 25% tariffs on Indian imports last week, while US officials continue to highlight multiple hurdles that are delaying a trade deal with India. 

 

Sentiment on the rupee has been fragile due to the hefty tariffs on Indian goods. On Monday, the pressure intensified, with the rupee falling despite the dollar weakening broadly. On Monday, the rupee failed to hold on to an intraday recovery to near 87.20.

"Today was already shaping up to be a difficult session (for the rupee), and Trump's latest tariff threat only amplified the pressure," a senior trader at a private bank said.

"I'd fully expect the Reserve Bank of India to step in - they won't want to let the rupee depreciate unchecked, especially in the face of US rhetoric."

He warned that overseas outflows from Indian equities may gather pace in response to rising trade tensions with the US

Key Indicators: 

• One-month non-deliverable rupee forward at 88.14; onshore one-month forward premium at 12 paise
• Dollar index up at 98.82
• Brent crude futures down 0.1% at $68.7 per barrel
• Ten-year US note yield at 4.2%
• As per NSDL data, foreign investors sold a net $165.5mln worth of Indian shares on Aug 1
• NSDL data shows foreign investors bought a net $223.7mln worth of Indian bonds on Aug 1