Rupee inches up, defying Asian peers' pressure; forward premiums slide

Rupee versus Dollar: The Rupee saw gains on Tuesday, diverging from the weakness observed in its Asian counterparts. Instead, it found support from mild Dollar sales by exporters and expectations of intervention by the central bank.

As of 10:05 am, the Rupee stood at 83.3625 against the US Dollar, showing slight strength compared to its previous close of 83.40 on Thursday. Trading remained halted on Friday and Monday.

Analysts anticipate the Rupee to maintain a range-bound trajectory, with the Reserve Bank of India likely to intervene by selling Dollars to curb Rupee weakness, as stated by Anil Bhansali, Head of Treasury at Finrex Treasury Advisors.

The Dollar index hovered around 105.06, nearing its highest level since mid-November, following a rise of over 0.4 per cent on Monday, propelled by stronger-than-expected US ISM manufacturing PMI data.

Across Asia, currencies experienced declines, with the Malaysian ringgit leading the drop by 0.4 per cent. The Chinese Yuan also weakened to a four-and-a-half-month low, prompting state-run banks in China to sell Dollars.

According to a foreign exchange trader at a private bank, the Dollar-Rupee pair is expected to trade with a "buy on dips" bias, with gains likely to be capped near 83.40-42. Mild Dollar sales by exporters also contributed to the Rupee's early gains.

In parallel, Dollar-Rupee forward premiums witnessed a decline, with the 1-year implied yield down by 1 basis point at 1.62 per cent. This downward pressure can be attributed to an increase in US bond yields as investors scaled back expectations of a Federal Reserve rate cut in June.

The 1-year US treasury yield inched up to 5.09 per cent during Asia trading hours, following a rise of 5 basis points on Monday.

Investor attention is focused on remarks from several Fed officials scheduled to speak throughout the week, including Fed Chair Powell on Wednesday. These speeches are expected to provide further insights into policymakers' perspectives on the trajectory of policy rates.

(With Reuters inputs.)