Key points:
The rupee, currently at 84.0625 against the U.S. dollar, remained nearly flat from its previous close of 84.08. While most of its Asian peers saw marginal gains, ranging between 0.1% to 0.3%, the rupee faced mounting pressure from rising U.S. bond yields.
This pressure has been exacerbated by market sentiment driven by the increasing likelihood of a Donald Trump victory in the U.S. presidential election.
A Trump presidency could trigger inflationary policies such as tariffs, which would have broad implications for Asian economies, potentially weakening their currencies.
Routine interventions by the Reserve Bank of India (RBI) have helped cushion the rupee against steeper declines.
These interventions have maintained the currency within a relatively narrow range, despite sustained equity outflows and rising U.S. bond yields.
The central bank’s role has also helped keep the rupee’s near-term implied volatility subdued, even as other regional currencies experience greater fluctuations.
For instance, the one-month implied volatility of the offshore Chinese yuan has risen from 6.7% to 7.5%, whereas the rupee’s volatility remains near 2%.
See also: Asian Currencies Fall on US Election Bets
While Asian currencies have generally weakened in October, with losses ranging from 0.6% to 4.5%, the rupee has seen relatively less depreciation, down only 0.3% so far.
This suggests that the rupee has outperformed its regional counterparts, benefitting from a combination of central bank interventions and lower volatility compared to its peers.
Picture: The USD/INR chart shows the pair consolidating around 84.18, with limited volatility and a flat MACD. See more on the VT Markets app.
However, the growing risk of U.S. tariff policies under a possible Trump presidency remains a critical factor that could shift market sentiment in the coming weeks.
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