Rupee ends weaker as dollar demand from importers, equity outflows exert pressure

By Jaspreet Kalra

MUMBAI (Reuters) – The Indian rupee weakened for the second day on Wednesday as U.S. dollar demand from importers and equity-related outflows pressured the domestic unit despite lower U.S. treasury yields and softness in the dollar.

The rupee closed slightly lower at 82.7325, as compared to 82.7050 in the previous session. Asian currencies traded mixed as the Indonesian rupiah and Malysian ringgit strengthened, while the Thai baht and Korean won weakened.

Importers moving in to hedge, speculative positioning by private banks, and block deal-related equity outflows weighed on the rupee, a foreign exchange trader at a state-run bank said.

Wednesday’s weakness in the rupee was “less about demand and more about a lack of sellers,” the trader said. Weighed by domestic factors, the rupee weakened despite a pullback in U.S. treasury yields on Tuesday.

The yield on the two-year treasury fell to 4.91% and the 10-year yield also declined to 4.14%, following softer-than-expected jobs and consumer confidence data in the United States.

A loosening in the labour market or dampening customer sentiment could dilute the odds of another hike by the U.S. Federal Reserve, which in turn is beneficial for currencies like the rupee.

“The rupee is likely to hover between 82.40 to 83.05 this week with a breach of 83 back on the cards,” said Gaurang Somaiya, FX and rates researcher at Motilal Oswal.

Investors will also eye U.S. GDP data for the June quarter, due later in the day, which could offer cues on how resilient the U.S. economy continues to be.

India’s first-quarter GDP numbers are due on Thursday and will be followed by initial jobless claim data and PCE inflation numbers in the U.S.

(Reporting by Jaspreet Kalra; Editing by Sonia Cheema)