The Indian rupee is expected to decline further on Wednesday due to a rise in the dollar index and a possible slowdown in equity flows.
Non-deliverable forwards indicate the rupee will open at 83.70-83.71 to the U.S. dollar, compared with 83.6875 in the previous session.
The rupee dipped to an all-time low of 83.7150 on Tuesday, amid choppy price action in local equities, prompting the Reserve Bank of India to intervene.
“It will be more of the same today, with the RBI stepping in to make sure that the move higher (on dollar/rupee) is at an unhurried pace,” a currency trader at a bank said.
“The overall direction (for dollar/rupee) was on the higher side before the budget and now all the more so.”
The government raised the tax rate on profit from equity investments and on equity derivatives trades, which led to a volatile session in the stock market.
Since June, the rupee had been helped by foreigners lapping up equities. Following the budget, these inflows “are in a bit of a doubt”, the trader said.
Foreign investors withdrew more than USD 350 million from Indian shares on Tuesday. They had invested nearly USD 5 billion this month before Tuesday.
Meanwhile, the dollar index inched higher in Asia, adding to Tuesday’s advance. The dollar gauge rose despite a rally in the Japanese yen amid a possibility that the Bank of Japan may hike interest rates next week.
The U.S. preliminary July PMI data will be out later in the day, providing cues on how manufacturing and services activity is holding up.
The June-quarter GDP data follows on Thursday and is likely to confirm that the economy “is on track for a soft-landing”, ANZ Bank said in a note.
