Rupee ends slightly lower as importer dollar bids, weak Asia FX weigh

The Rupee ended marginally lower on Tuesday as weakness in its Asian peers and dollar demand from importers pushed the currency back towards its weakest level on record.

The rupee closed at 83.9250 against the US dollar, within touching distance of its all-time low of 83.9725 hit earlier in the month. The unit closed at 83.90 in the previous session.

Asian currencies slipped, with the Philippine peso down 0.5 per cent and leading losses, while the dollar index was at 100.8, hovering close to its weakest level since December.

While there has been sustained demand for the greenback from importers, lack of strong inflows and exporters holding back on dollar sales have maintained pressure on the rupee, an FX salesperson at a foreign bank said.

Despite its Asian peers having risen between 0.2 per cent and 5 per cent over August so far the rupee's gains have largely proven to be fleeting even as the dollar has dropped 3 per cent this month in the lead up to rate cuts kicking off in the United States next month.

Investors are currently pricing in 100 bps worth of policy easing by the US Federal Reserve over 2024.

"While the consensus trade in the FX market near-term is to sell dollar rallies, we haven't really had a rally big enough to sell into," Societe Generale said in a note.

The dollar's direction from here will depend on the labour market data at the start of September, the note said.

Investors await the US non-farm payrolls report on Sept. 6 to gauge whether the central bank will cut rates by 50 or 25 basis points (bps).

The rupee, meanwhile, is unlikely to gain much from weakness in the dollar as the Reserve Bank of India is expected to step in to prevent any undue appreciation in the already overvalued local currency.