Weak risk appetite singes rupee but likely intervention averts record low

By Jaspreet Kalra

The rupee was anchored near its record low for much of the session on Tuesday as risk appetite waned amid renewed U.S.-China trade tensions, though likely central bank intervention kept the local unit from dipping past its all-time low.

The rupee USDINR closed at 88.7975 against the U.S. dollar, down 0.14% on day and within touching distance of its record low of 88.80.

Traders cited persistent dollar sales by state-run banks, most likely on behalf of the Reserve Bank of India, mirroring intervention patterns seen in the last couple of weeks.

A large private bank was also spotted offering dollars near the 88.80 mark, while bids were dominated by foreign banks, an FX trader at a Mumbai-based bank said.

Asian currencies were mostly weaker as well, with the Korean won falling and Thai baht leading declines with a 0.6% and 0.9% fall, respectively.

Global equities were in the red as well, with India's benchmark Nifty 50 NIFTY down 0.3% but faring better than the MSCI's gauge of Asian shares outside of Japan (.MIAPJ0000PUS), which was down 1%.

Safe-haven currencies, including the Japanese yen USDJPY and Swiss-franc USDCHF, nudged higher on Tuesday.

Weak risk appetite globally added to the headwinds that the rupee is facing on account of steep U.S. tariffs, tighter immigration policies and a sharp rally in precious metals such as gold and silver.

"We think India will eventually secure a lower tariff rate, which should benefit INR over three to six months but for now, the prevailing uncertainty may continue to dampen investor sentiment," analysts at ING said in a note.

Their counterparts at HSBC also expect the rupee to recover once a breakthrough occurs in U.S.-India trade negotiations but limited visibility on that has prompted them to temper their year-end rupee forecast to 87.50, weaker than the 87 level pencilled in earlier.