The Indian rupee is expected to open marginally higher on Tuesday, showing resilience in the face of recent trade developments. This comes as Asian markets remain relatively calm despite the United States imposing higher tariffs on some of its trading partners, including South Korea and Japan. However, India was notably left out of this round of tariff hikes.
President Trump's recent statements regarding nearing a trade agreement with India are providing support to the rupee. Currency traders view this development as a marginally positive factor. The one-month non-deliverable forward is indicating an opening in the 85.70-85.75 range, compared to the previous session's close of 85.8500.
On Monday, President Trump sent letters to 14 countries, including Japan and South Korea, outlining higher import tariffs. The implementation of these tariffs has been pushed to August 1, providing these countries with additional time to reach trade deals with the U.S. The original deadline was July 9. Trump suggested the August 1 deadline was "firm, but not 100% firm," implying there is still room for negotiation and agreements.
Despite the prospect of higher duties, shares in Japan and South Korea rose, suggesting that investors are more focused on the tariff delay than the potential imposition of higher duties. ING Bank noted that while Trump's letters suggest a "take-it-or-leave-it offer," they have effectively extended the tariff deadline from July 9 to August 1. The bank added that the U.S. administration has provided countries another three weeks to finalize more trade deals, despite repeatedly insisting that no extension would be granted.
A currency trader at a private bank noted that the possibility of the U.S. striking a deal with India is a marginal positive for the rupee. More importantly, Asian markets are not reacting significantly to the latest developments from the U.S., which is helping overall sentiment.
However, it's important to note that earlier in the week, the Indian rupee had slumped due to renewed uncertainty about U.S. tariff policies. President Trump's threat of a fresh 10% levy on BRICS countries compounded pressure on the local currency, along with currencies like the South African rand and Chinese yuan. Concerns over U.S. trade policies had dented risk sentiment across the board, pushing Asian currencies and equities into the red. The rupee had declined to a low of 86.0275 per U.S. dollar during the session but pared losses to close at 85.85 per U.S. dollar, down 0.5% on the day.
Parmar expects the Reserve Bank of India to intervene to support the rupee if volatility remains high due to uncertainty regarding U.S. trade policies. Traders also pointed to strong dollar demand from a large local private bank, which put pressure on the local currency. A trader at a state-run bank expects the currency to weaken to 86.50 in the near term if there are no positive developments on the trade front.
Despite Monday's dip, the rupee has still managed to gain 0.17% so far in July, after posting a 0.18% loss in the first half of the year. Overall, the situation remains fluid, with the rupee's trajectory heavily dependent on further developments in U.S. trade policy and the ongoing negotiations between India and the United States.
