Rupee little changed, bucks regional volatility trends ahead of US election

The Indian rupee was largely flat on Thursday with volatility expectations signalling that the currency is expected to remain rangebound, even as its regional peers brace for swings heading into the US presidential election.

The rupee was at 84.0625 against the US dollar as of 11:00 am IST, compared with its close at 84.08 in the previous session.

Gains in most of its Asian peers offered only marginal relief to the rupee. Regional currencies were up between 0.1% to 0.3%.

The local currency has been pinned near record low levels for much of the week amid a rise in US bond yields on the back of heightened odds of a Donald Trump victory in the upcoming US election and sustained outflows from local equities.

Routine interventions by the Reserve Bank of India have helped the rupee avert sharp declines despite the multiple pressures, traders said.

The central bank’s interventions have also contributed to keeping the rupee’s near-term implied volatility subdued even as those of its peers have risen in the lead-up to the election.

The offshore Chinese yuan’s 1-month implied volatility has risen to 7.5% from 6.7% at the end of last month, while that of the rupee’s has been largely stable near 2%.

“US tariff risk is growing, given rising odds of Trump winning,” MUFG Bank said in a note.

“Trump’s tariff(s) would have a huge negative impact on the outlook for Asian economies and pose downside risk to our forecasts for Asian currencies.”

The rupee’s subdued volatility has also contributed to its outperformance versus regional peers this month. Asian currencies are down between 0.6% to 4.5% in October so far while the rupee has weakened by 0.3%.

Reuters