MUMBAI (Reuters) – The Indian rupee is expected to depreciate further on Tuesday, tracking losses in the Chinese yuan after U.S. President Donald Trump threatened additional tariffs on Asia’s largest economy.
The 1-month non-deliverable forward indicated that the rupee will open at 85.90-85.92 to the U.S. dollar compared with 85.8350 in the previous session.
The Indian currency tumbled 0.7% on Monday, marking its biggest fall in three months, in the wake of a risk-off triggered by fears that Trump’s tariff threats will be a drag on growth and stoke inflation.
The risk mood “is much better”, which should help the rupee, while on the flip side, the yuan is a concern, a currency trader at a Mumbai-based bank said.
The near-term trajectory of the rupee and the broader Asian FX market is currently solely dependent on developments in the tariff landscape, he said.
If China lets the yuan weaken to cushion the impact of U.S. tariffs, India’s central bank may tolerate a sharper depreciation of the rupee.
The offshore Chinese yuan weakened past 7.36 to the U.S. dollar – its worst level in two months – following Trump’s comments on Monday that he would impose an additional 50% duty on U.S. imports from China on Wednesday if China did not withdraw the 34% tariffs it had imposed on U.S. products last week.
China had announced the tariffs in response to the “reciprocal” duties announced by Trump.
Investors are having to navigate a turbulent landscape in the wake of the tariff war. Risk assets are being dumped, safe-havens lapped up and the rupee and other emerging market currencies are struggling.
Trump’s latest remarks suggest the turbulence is far from over.
“It remains to be seen how China will respond to Trump’s latest comments. The indications including in an article in the People’s Daily suggest that China has already prepared to ride out this storm,” MUFG Bank said in a note.
KEY INDICATORS:
** One-month non-deliverable rupee forward at 86.11; onshore one-month forward premium at 21 paise
** Dollar index down at 102.88
** Brent crude futures up 1.4% at $65.1 per barrel
** Ten-year U.S. note yield at 4.17%
** As per NSDL data, foreign investors sold a net $367 mln worth of Indian shares on April 4
** NSDL data shows foreign investors sold a net $8.6 mln worth of Indian bonds on April 4
(Reporting by Nimesh Vora; Editing by Mrigank Dhaniwala; Editing by Mrigank Dhaniwala)
By Nimesh Vora
