Rupee ends at 87.067 against dollar, US-China trade tensions in focus

The Indian rupee ended higher in a choppy trading session on Tuesday, mirroring gains in regional currencies, but concerns over an escalating US-China trade war kept investors on edge.

The rupee ended at 87.0675 against the US dollar, against a record closing low of 87.1850 in the previous session, when it also fell to an all-time low of 87.28. 

Most Asian currencies rose amid the ongoing tit-for-tat escalation of a global trade war between the world's two largest economies, the US and China.

China retaliated with a package of tariffs on a range of US products in an immediate response to a 10 per cent tariff on Chinese imports announced by US President Donald Trump.

 

Trump's press secretary said the president would speak with Chinese President Xi Jinping in the next couple of days.

Meanwhile, Trump delayed 25 per cent tariffs against Mexico and Canada, agreeing to a 30-day pause in return for concessions on border and crime enforcement with the two neighbouring countries.

"The tit-for-tat tariff regime has left investors cautious, with concerns that the potential for a protracted tariff war could stoke inflationary pressures in the US," said Jigar Trivedi, a senior analyst at Reliance Securities.

Trivedi expects the rupee to fall to 87.30 as the trade war adds to market volatility.

The dollar index, having rallied to nearly 110 on Monday, pulled back sharply to 108.48 on the day.

The offshore Chinese yuan recovered to 7.29 to the US dollar.

From now on, markets could handle tariff threats even more cautiously, but "a new layer of unpredictability" argues against big dollar depreciation for now, ING Bank said in a note.

"...markets need to follow a rationale, and we think the conclusion is that Trump is ready to bluff his way into transactional victories, whether on border security or trade," the bank said.