By Jaspreet Kalra
MUMBAI (Reuters) – The Indian rupee rose to its highest level in nearly two weeks on Monday as the dollar index declined to its lowest level in six months, sparking broad gains in Asian currencies.
The rupee was at 83.90 as of 11:10 a.m. IST, up about 0.05% compared with its previous close at 83.94 on Friday.
The local currency rose to 83.85 in early trading, its highest level since Aug. 6.
The dollar index fell 0.3% to 102.1, its lowest level since mid-January, as investors anticipated a dovish tilt emerging in the Federal Reserve’s July policy meeting minutes, due on Wednesday, and Chair Jerome Powell’s remarks later in the week.
“With US macro data showing disinflation and growth still largely resilient, Chair Powell could provide a stronger signal that the Fed will proceed with rate cuts at the September FOMC meeting,” MUFG Bank said in a note.
Traders have fully priced in a 25-bps rate cut by the Fed at its September meeting, while resilient U.S. economic data slimmed hopes of a 50-bps cut.
Despite gaining in early trading, the rupee lagged behind gains in Asian currencies, which were up by 0.3% to 1.5%. It has declined about 0.2% against the dollar over the last month, diverging from broad-based strength in its peer currencies.
Heightened dollar demand from local importers and outflows from equities have hurdled gains in the local currency, traders said.
Overseas investors have pulled out $2.5 billion from local stocks over August so far, according to stock depository data.
Unless there is a reversal in equity flows, the rupee is unlikely to gain above 83.80 given the strong dollar demand from importers over recent sessions, a foreign exchange trader at a private bank said.
(Reporting by Jaspreet Kalra; Editing by Janane Venkatraman)
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