Indian rupee ends flat as stock slump, importer hedging erodes bounce

Mumbai saw the Indian rupee close nearly unchanged on Monday, following a decline in local stocks and increased dollar buying by importers during a relatively quiet trading day. The rupee fluctuated between 94.76 and 94.96 throughout the day, ultimately settling at 94.9250, showing little change from its closing level on Friday.

India's key stock index, the Nifty 50, dropped by over 1%, driven by the poor performance of major IT and financial stocks, both of which are heavily invested in by foreigners. Traders noted that the demand for dollars by importers also contributed to the local currency's weakened position, despite a 2% fall in Brent crude oil prices to $108 per barrel.

This drop in oil prices was attributed to U.S. President Donald Trump's decision to waive sanctions on Russia. US Secretary of State Marco Rubio stated that Trump would take up to 60 days to evaluate the impact of these sanctions and tariffs on the global economy. In the short term, the market's attention is shifting towards the US midterm elections, which could act as a "risk event."

Should either a renewed war in Iran or a diminished focus on the issue occur, market sentiment may remain cautious until then. In the meantime, traders are eagerly awaiting the release of the minutes from the Reserve Bank of India's October policy meeting, where the central bank made its first rate increase in four years. ANZ expects a 25 basis point hike in December, but persistent foreign exchange (FX) pressure and the RBI's recent actions might lead to a higher probability of a 50 basis point hike, or a 25 basis point repo rate increase alongside an expansion of the policy corridor.