India rupee drops again - is a return to 23.5 for one dirham possible?

Dubai: The Indian rupee is once again showing signs of weakening against the dirham/dollar, with some analysts forecasting even a drop back to 23.5 for one dirham. Anything in the 23.4-23.5 range would be quite a bonus for Indian expats in the UAE, who have been getting 23.1-23.2 on their fund transfers home.

This morning, the rupee slipped to 23.38 from 23.34, brought on by a dollar that's steadily getting back some of its strength.

As for when to send remittances to India, NRIs 'could consider waiting for a further 24 hours or so' to see if the rupee softening up against the dirham/dollar will continue.

"The signs point to more rate drops for the AED-INR - if NRIs have funds to remit, they could consider taking an extra day to decide," said a currency exchange house official. "Even if the INR firms up, the increase will still be limited."

Some of the INR's renewed weakening also has to do with how markets are viewing a possible trade deal between India and the US. President Trump has extended his deal deadline with key trading partners to August 1, and has spoken about there being no more extensions.

Will a US trade deal firm up INR?

"A comprehensive trade agreement with broad tariff reductions and market access could strengthen the rupee to 84-84.50 against the US dollar by year-end, driven by improved trade flows and foreign capital inflows," said Krishnan Ramachandran, CEO of Barjeel Geojit Financial Securities.

"A limited or partial deal may provide a temporary lift to the 85-86 range, while a breakdown in talks or fresh tariff impositions could weaken the rupee toward 86.50-87, especially if accompanied by global risk aversion or higher oil prices.

"The breadth and credibility of the trade deal will be key to determining whether the rupee stabilizes or re-enters a volatile zone."

Sensex blase about trade deal - so far

Market sources say that sentiments about an India-US trade deal being reached well before August 1 have risen. The Sensex is down by 7 points at 9am UAE time.

"The subdued opening of Indian markets mirrors the cautious global risk sentiment," said Foram Chheda, founder of ChartAnalytics. "This is influencing the USD-INR stability.

"At present, there is no significant evidence of active RBI intervention in the currency markets. The rupee’s movement appears to be primarily driven by external factors such as dollar's strength and foreign fund flows.

"Unless there is a sharp or disorderly move in the exchange rate, the RBI is likely to maintain a hands-off approach, allowing market forces to dictate the direction. As a result, USD-INR is expected to trade within a defined range in the near term, with no immediate support from the central bank observed at this time."