Rupee gave up early gains post Trump's Mexico, Canada tariff threat

The rupee reversed its early gains on Tuesday to settle largely unchanged as the US dollar index strengthened during the day. It followed US President Donald Trump’s plans to impose 25 per cent tariffs on Canada and Mexico from February 1, dealers said.

 

The local currency appreciated to 86.29 per dollar in early trade, following an overnight decline in the dollar index after Trump refrained from announcing tariffs on his first day in office. The dollar index fell to 108.21, against the previous close of 109.35.

 

The rupee settled at 86.58 against the dollar, compared to the previous close of 86.57 per dollar.

 

 

The dollar index measures the strength of the greenback against a basket of six major currencies.

 

The Reserve Bank of India (RBI) intervened in the foreign exchange market via dollar sales to avoid further depreciation of the rupee, dealers said. 

 

Later in the day, Trump announced a 25 per cent tariff on imports from Mexico and Canada, leading to expectations of tariffs on China. During his campaign, he had proposed a 60 per cent tariff on China but appeared to temper his plans following a telephone conversation with Chinese President Xi Jinping.

 

The yield on the benchmark US 10-year Treasury rose to 4.57 per cent after the tariff warning to Canada and Mexico, recovering from a significant drop from its recent high of 4.8 per cent to 4.5 per cent. The dollar index also rose to 108.75.

 

“The dollar index fell overnight, which is why the rupee opened with a gap. However, the tariff on Mexico and Canada led to expectations of similar measures on China, causing the dollar to rise and the rupee to return to Monday’s closing level,” said a dealer at a state-owned bank.

 

 “The RBI was present, but there was no heavy intervention,” said a dealer at another state-owned bank. “We might see some stability now that Trump has taken office,” he added.

 

 The local currency is expected to trade in a range of 86.2 per dollar to 86.75 per dollar.

 

 “There is technical support at 86.75 per dollar, and on the lower end, it is 86.2,” said a dealer at a private bank.

 

In the current financial year, the rupee has depreciated by 3.67 per cent. For the current month, it has witnessed a 1.12 per cent depreciation.