Indian rupee may cling to subdued rhythm, improved portfolio inflows lend support

Mumbai: The Indian rupee is set for another subdued trading session on Tuesday, with traders anticipating the central bank to step in against pressure on the currency, while a slight increase in portfolio inflows is also anticipated to provide some relief. The rupee faces ongoing hedging demand from local firms and varying maturities of derivative contracts, in addition to the persistently high oil prices.

Analysts predict the rupee to open around the 95.70-95.75 range on Tuesday, after closing at 95.7450 to the dollar on Monday. The central bank's continuous interventions have helped position the rupee among Asia's calmest currencies in the past two weeks, keeping it within a narrow 30-paisa range between 95.45 and 95.75. "Any drops (in USD/INR) are being absorbed by corporate purchases, while gains are being limited by the RBI.

Expect more of the same in the near term," said a trader from a state-run bank. The recent surge in foreign portfolio investments has also been beneficial for the rupee. Indian investors have bought over $2.5 billion worth of Indian stocks in August, up from $2.1 billion in the previous month, reversing a trend of substantial outflows for four consecutive months.

Meanwhile, other Asian currencies remained relatively steady. The US dollar faced difficulty maintaining its gains against major currencies on Tuesday, as investors analyzed Washington's broader Iran-related sanctions and renewed attempts to bring down longer-dated Treasury yields. US Treasury Secretary Scott Bessent announced an expansion of sanctions against Iran on Monday, and CNBC reported that the U.S. Treasury might utilize part of its cash reserves to buy back longer-dated bonds to ease borrowing costs.

"Global economic fragmentation and geopolitical tensions are driving countries to diversify their reserves, trade, and financial linkages further to avoid becoming overly dependent on any single system, including our current dollar-based one," said MUFG in a recent note.