Mumbai: The Indian rupee is tipped to rise versus the US dollar on Tuesday after the dollar index retreated from a two-decade high and the Chinese yuan recovered on the measures taken by the nation's central bank.
The rupee is expected to be around 79.75 in initial trades, compared with 79.8425 in the previous session.
The pause in dollar's rally and the halt in yuan's slide will help rupee "once again avoid the 80 level", a trader at a Mumbai-based bank said.
"Based on the recent price action, trading the 79.30-80.10 range offers a decent risk reward." The dollar index inched lower in Asia trading to below 109.50, after hitting a 20-year high of 110.27 on Monday.
Meanwhile, the offshore Chinese yuan recovered slightly to near 6.9406 to the dollar, after the People's Bank of China cut the foreign exchange reserve requirement ratio by 200 basis points.
The PBOC's step to cut the amount of foreign exchange reserves that financial institutions must hold came on the back of a swift decline in the yuan. Over the last three weeks, the yuan has fallen about 3%.
This move is a policy signal that the PBOC is getting uncomfortable with the rapid pace of depreciation of the currency, especially ahead of the 20th party congress in October, Goldman Sachs said in a note.
Other Asian currencies rose alongside the yuan. The Korean won, the Indonesian rupiah and the Thai baht were up at least 0.2% each.
The fall in oil prices on Tuesday is likely to help the rupee. Brent crude futures were down almost 1%. The OPEC+ deal to cut output by 100,000 barrels per day in October is seen as a largely symbolic move to stem the market's recent slide.
Asian shares were mixed, while U.S. equity futures were marginally higher.