MUMBAI: The Indian rupee is poised to open slightly weaker on Tuesday after U.S. President Donald Trump made good on his threat of imposing tariffs on steel and aluminium imports, fuelling fears of a wider trade war.
The 1-month non-deliverable forward indicated that the rupee will open at 87.52-87.54 to the U.S. dollar down from 87.4750 on Monday.
The Indian currency had dropped to near 88 on Monday, before aggressive intervention by the central bank helped it recover.
The 88 level “probably marks the near-term top for now” for the dollar/rupee pair considering the way the Reserve Bank of India intervened on Monday, a currency trader at a bank said.
A “bigger” dip on dollar/rupee from here is unlikely taking into account how Trump is “juicing up” on the tariffs, he said.
Trump, following through on his comments, raised tariffs on steel and aluminium imports on Monday, spurring worries of a multi-front trade war. He reiterated that he would follow this up with reciprocal tariffs on all countries over the next two days.
U.S. equity futures dipped alongside most Asian shares and the dollar index inched up. Asian currencies declined.
The extent of losses on Asia forex and equities was “not really alarming” and it would look like investors “have accepted it without much noise”, the currency trader said.
Trump’s latest moves suggest that the optimism that a trade war would be averted when he paused tariffs on Canada and Mexico might have been misplaced.
Meanwhile, Federal Reserve Chair Jerome Powell’s testimony before the Senate Banking Committee later in day will be watched for gauging the outlook on inflation and interest rates.
“He is unlikely to deviate from the current neutral tone collectively from the FOMC (Federal Open Market Committee)”, MUFG Bank said in a note.
