Rupee weakens near 86/$, tracking Asian peers after soft US inflation data

Indian Rupee today: The domestic currency opened 16 paise lower at 85.98 against the dollar on Wednesday

Indian Rupee traded lower on Wednesday after the dollar edged higher as traders cut their rate cut bets by the US Federal Reserve after the inflation print. 

 

The domestic currency opened 16 paise lower at 85.98 against the dollar on Wednesday, according to Bloomberg. The rupee has depreciated by 0.60 per cent against the greenback in the current financial year, and has witnessed 0.48 per cent depreciation in the current calendar year.

 

The rupee's weakness followed fading hopes of a US Fed, as reports indicated that companies are passing tariff-related costs on to consumers. Core inflation, which excludes the volatile food and energy components, rose by just 0.2 per cent in June from May, marking the fifth straight month of softer-than-expected underlying price increases. 

 

On the tariffs front, Trump sealed a deal with Indonesia, imposing a 19 per cent tariff on its goods, and said that a pact with India will work along that same line. He also said that tariffs on pharmaceuticals could be imposed as early as the end of the month. The dollar index, a measure of the greenback against a basket of six major currencies, pared gains and was down 0.06 per cent at 98.55.

 

The currency closed higher on Tuesday but weakened in early trade on Wednesday, tracking a stronger dollar index and broad losses in Asian currencies, according to Anil Kumar Bhansali, head of treasury and executive director at Finrex Treasury Advisors LLP. "The Reserve Bank of India (RBI) is expected to defend the 86.00 level.

 

India’s trade deficit narrowed more than expected, signalling a slowdown in economic activity, Bhansali said. Merchandise exports in June were recorded at $35.14 billion, nearly flat from $35.16 billion in the same month last year. On the import side, the country saw a 3.71 per cent year-on-year decline, totalling $53.92 billion. 

 

Exporters can continue selling around the 86.00 mark, while importers may choose to wait for intra-day dips to hedge, especially with flows from SBI’s QIP expected in two to three tranches, according to Bhansali. 

 

In commodities, crude oil prices rose slightly on expectations of a steady demand from the US and China, amidst an improving economic outlook. Brent crude price was up 0.23 per cent at $68.87 per barrel, while WTI crude prices were higher by 0.42 per cent at 66.80, as of 9:15 AM IST.