Rupee posts weekly loss, underperforms in Asia

NEW DELHI: The rupee ended lower on Friday and down on week as likely one-time dollar outflows dragged the currency compared to stronger Asian peers that gained from softening US inflation data.
The partially convertible rupee traded in a tight range all day to end 0.03% lower at 79.6550 per dollar, compared to its previous close of 79.6350. The currency failed to capitalise on a weak dollar and shed 0.6% this week.
By comparison, improved risk appetite and soft US inflation print helped Asian peers perform better, including the onshore Chinese yuan, the Indonesian rupiah and the Singapore dollar that were firm between 0.3% to 1.5% this week.
Meanwhile, foreign investors bought about $2.4 billion of Indian shares so far this month and $3.3 billion since July 29.
“There is seemingly a daily flow mismatch with India running a record trade deficit. The pickup in foreign equity inflows is not able to plug it,” Jayaram Krishnamurthy, head of research and advisory at Almus Risk Consulting, said.
During the week, big demand for dollars by oil importers was seen, while Krishnamurthy added that there were rumours the one-off dollar outflow was for some defence-related payments.
“Liquidity in USDINR has been thin. Thus one-off flows are creating quick one-sided moves,” said Kunal Sodhani, vice president at Shinhan Bank, adding that a fall in crude prices could potentially help the rupee, but the decline needed to sustain.
Brent crude on Friday was little changed at $99.62, while the dollar index arrested its four day slide to jump 0.3%.
The dollar received support from recent comments by several US Federal Reserve officials that suggested the central bank would remain hawkish despite some relief on the inflation front.
Investors now await India’s inflation figures for July due later in the day, which is expected to ease but still remain above the Reserve Bank of India’s tolerance band for the seventh straight month.
“In India, we expect the RBI to step down on the pace of hikes (35 basis points in September and two 25 bps hikes thereafter), amid stable underlying inflation, higher inflation tolerance (less than 6%, but above 4%) and as real policy rates inch closer to zero,” Nomura analysts wrote.

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