Rangebound patterns tighten rupee's correlation with Indian stocks
The rupee's 30-day correlation with the benchmark Nifty 50 index has tightened to 0.66, the highest level since mid-May, pointing to the currency's increased sensitivity to moves in local stocks.
On the day, the Nifty 50 (.NSEI), opens new tab was down about 0.6%, while the rupee dipped to last quote at 86.2025 per U.S. dollar as of 10:50 a.m. IST, down 0.1%.
Local equities diverged from regional peers, led by losses in financial stocks. Asian currencies, meanwhile, were trading mixed and the dollar index was little changed at 98.5.
Amidst the largely rangebound moves, the rupee's 1-month implied volatility has eased to a near one-month low of 4.2%, while the stock volatility gauge, India VIX (.NIFVIX), opens new tab, has retreated to 11.6 from around 14 a month earlier.
Foreign portfolio flows, a key driver for both the rupee and local stocks, have also been muted, contributing to rangebound price action, a trader at a state-run bank pointed out.
Both the local equity and FX markets are "lacking a clear direction right now," said Apurva Swarup, vice president at Shinhan Bank India, referring to the rangebound moves.
News on the U.S.-India trade deal would be key to watch, as it could push stocks and the rupee to move out of their prevailing ranges, Swarup added.
The United States is very close to a trade deal with India, U.S. President Donald Trump said earlier this week. Country-specific reciprocal tariff rates on exports to the U.S. are slated to go into effect starting August 1.
On the day, dollar bids from foreign and local private banks weighed on the rupee, with traders also pointing to heightened demand to buy dollars at the daily reference rate.
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