Rupee set to extend rally, riding momentum in Asia FX
MUMBAI, May 26 (Reuters) - The Indian rupee is poised to kick off the week on a positive note, extending Friday's rally, buoyed by a strength in Asian currencies which included the Chinese yuan's surge to a seven-month high.
The 1-month non-deliverable forward indicated that the rupee will open in the 84.98-85.02 range per U.S. dollar on Monday, from its Friday close of 85.2125. The currency had surged 0.92% on Friday, its best single-day performance in over two years.
Friday marked an unexpected turnaround in the rupee's performance. Until then, the Indian currency had largely missed out on the rally enjoyed by its Asian peers.
"Difficult to pinpoint what exactly changed on Friday. In hindsight, it may have been the lack of dollar payments that had been plaguing the rupee, the relentless up move in Asia and finally the collective wisdom that a short (on dollar/rupee) offers value, " a currency trader at a Mumbai-based bank said.
However, despite Friday's rally, the rupee remains an underperformer among Asian FX this month. While the rupee is down 0.8% in May, the Korean won, Thai baht, and Indonesian rupiah have climbed between 2.5% and 5.5%. Meanwhile, the offshore Chinese yuan has strengthened 1.5% to 7.1650 against the dollar.
The dollar weakened against its major peers and Asian currencies on Monday, with the dollar index (=USD) slipping 0.3% to 98.76 — not far from its year-to-date low.
Expectations of FX revaluation have supported Asian currencies, while U.S. fiscal concerns continue to weigh on the dollar.
Meanwhile, U.S. President Donald Trump on Sunday backed off his threat to speed up 50% tariffs on imports from the European Union, agreeing to extend his deadline for trade talks until July 9.
The rapid de-escalation — just two days after the initial threat — underscores the unpredictability and volatility of U.S. trade policy.
KEY INDICATORS:
** One-month non-deliverable rupee forward at 85.14; onshore one-month forward premium at 13.5 paisa
** Dollar index down at 98.72
** Brent crude futures up 0.1% at $64.8 per barrel
** Ten-year U.S. note yield at 4.51%
** As per NSDL data, foreign investors sold a net $634.6 million worth of Indian shares on May 22
** NSDL data shows foreign investors sold a net $53.4 million worth of Indian bonds on May 22
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