The rupee recovers slightly after hitting a lifetime low, influenced by a weaker Chinese yuan and dollar outflows
On Friday, the Indian rupee inched higher, recovering from a decline to its record low in the previous session. The drop was spurred by weakness in the Chinese yuan and likely dollar outflows. As of 10:00 a.m. IST, the rupee stood at 83.61 against the U.S. dollar, up from its previous close of 83.6525. On Thursday, the currency had fallen to a record low of 83.6650.
The offshore Chinese yuan fell to 7.29 on Friday, its lowest level in seven months. This decline followed a lower central bank guidance for the currency on Thursday, which triggered market speculations that Chinese authorities might be prepared to see the yuan weaken further.
In India, traders pointed to outflows related to UK-based Vodafone Group’s larger-than-expected 18% stake sale in Indus Towers as a factor contributing to the rupee’s recent weakness. However, on Friday, mild dollar sales from foreign banks provided some support for the rupee, helping it tick higher, according to a foreign exchange trader at a state-run bank.
Additionally, the rebalancing of an FTSE equity index is expected to draw $250 million in inflows, according to Nuvama Alternative & Quantitative Research. “Likely dollar sales by the RBI (Reserve Bank of India), inflows on account of inclusion in the J.P. Morgan EM Bond Index, and rebalancing of the FTSE Index could cap losses for the rupee,” HDFC Bank stated in a note. “We expect the pair to slip back into the 83.0-83.50 range over the coming month.”
Meanwhile, the dollar index was near 105.6 after rising 0.4% on Thursday. This increase was bolstered by a second successive rate cut by the Swiss National Bank and signals from the Bank of England indicating a potential rate reduction in August.
