The Indian Rupee finished almost flat on Monday, with typical Dollar demand balanced by offsetting inflows, keeping the currency largely range-bound at the week’s start.
It traded within a tight 10-paise range, closing at 90.65 versus the previous close of 90.6350.
Earlier in the month, the Rupee had surged on optimism surrounding the US-India trade deal, but it has since returned to moving mainly in response to short-term flows and external factors.
Dollar sales by exporters and foreign portfolio inflows have contributed to a 1.5% gain for the Rupee so far in February.
However, that backing may start to fade.
From a technical standpoint, the 90.00-90.20 range continues to act as key support for USD/INR, while a gradual rise toward 91.00-91.20 could occur in the near term, he noted.
Although foreign investors are still net buyers of Indian equities for the month, they withdrew over $800 million on Friday, highlighting the continued volatility in capital flows.
Weaker-than-expected US inflation has increased the likelihood of at least two additional Federal Reserve rate cuts.
Citi noted that concerns over a rapid and sustained depreciation of the Rupee appear to have eased, which should be positive news for equity investors.
The brokerage added that some investors are open to betting on the Rupee outperforming other currencies on a relative basis, even if they don’t expect it to appreciate in absolute terms.
Elsewhere, the Japanese Yen fell 0.4% to 153.28 per US Dollar on Monday, following a nearly 3% surge last week, its largest weekly gain in roughly 15 months, after Prime Minister Sanae Takaichi’s Liberal Democratic Party secured a decisive election win.
Bank of Japan Governor Kazuo Ueda and Prime Minister Sanae Takaichi held their first one-on-one meeting since the election on Monday. Ueda described it as a “general exchange of views on economic and financial developments,” noting that the prime minister did not put forward any specific monetary policy requests.
The Bank of Japan is scheduled to meet on interest rates in March, with traders assigning a 20% probability of a hike. Economists surveyed by Reuters last month, however, anticipate that the central bank will hold off on tightening policy until July.