Rupee Ends Slightly Higher as Dollar Dips Ahead of Trump's Inauguration
Rupee Strengthens Amidst Softer Dollar
The Indian rupee closed modestly stronger on Monday, as a softer dollar provided some relief to Asian currencies ahead of U.S. President-elect Donald Trump's inauguration. The rupee closed at 86.5675 against the U.S. dollar, up from its previous close of 86.61.
Dollar Index and Asian Currencies
The dollar index was down 0.2% at 109.1, while Asian currencies mostly traded higher, with gains between 0.1% and 0.7%. The offshore yuan rose to a two-week high, buoyed by a friendly call between Trump and Chinese President Xi Jinping on Friday, as well as better-than-expected fourth-quarter Chinese economic data.
Market Focus on Trump's Policies
With Trump returning to the White House, financial markets are expected to closely watch policy announcements coming out of Washington this week. U.S. markets were closed on Monday for the Martin Luther King Jr. Day holiday.
Implied Volatility Rises
The dollar-rupee pair's implied volatility, a gauge of future expectations, has risen to a multi-month high across various tenors, reflecting the uncertainty surrounding Trump's policies. The 1-month implied volatility rose to a peak of 4.3% on Monday, its highest level since August 2023.
Potential for Dollar Correction
According to ING Bank, there is a risk of a correction in the dollar if Trump appears to be more selective on tariffs than previously stated, though this is expected to occur at a later stage. Trump has previously pledged to impose 10% duties on all U.S. imports and 60% on goods from China.
Foreign Portfolio Outflows
While Trump's policy measures may dominate the near-term outlook, persistent foreign portfolio outflows have remained a challenge for the rupee. Overseas investors have net sold approximately $6.5 billion of local stocks and bonds in January so far, marking the steepest monthly outflow since October 2023.
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