Rupee may not respond much to dip in Asian peers; focus on flows

MUMBAI, March 24 (Reuters) – The Indian rupee, following last week’s rally, may not react much at the open on Monday to the decline in the Chinese yuan and other Asian currencies.

The 1-month non-deliverable forward indicated that the rupee will open little changed to the U.S. dollar from 85.9725 in the previous session.

The Indian currency rallied significantly last week, rising 1.2% amid inflows, resulting in its best weekly performance in two years.

Foreign inflows into Indian equities exceeded $1 billion last week, a significant chunk of which took place on Thursday and Friday. Friday’s data is preliminary.

While the magnitude of the inflows is not exceptionally large in isolation, it represents a significant shift from prior weeks, a currency trader at a bank said.

Foreign investors took out nearly $3.5 billion from Indian equities between March 3 and 14, which followed a $4 billion withdrawal in February.

“There were probably other flows too last week and whether we have more of them will decide” if rupee manages to hold near the 86 level, the currency trader said.

Asian currencies kicked off the week on a weak note, down between 0.1% and 0.3%, while the dollar index was marginally higher. The offshore Chinese yuan dropped to 7.2650 to the U.S. dollar, the weakest level in two weeks.

The near-term direction of Asian currencies hinges largely on what U.S. President Donald Trump does on tariffs next week. The next round of tariffs is due on April 2, when Trump said he will announce reciprocal levies on other countries.

Meanwhile, Federal Reserve officials in a speech on Friday backed a cautious policy approach in light of economic uncertainty.

** One-month non-deliverable rupee forward at 86.26; onshore one-month forward premium at 26.5 paise ** Dollar index up at 104.08

** Brent crude futures down 0.3% at $71.9 per barrel

** Ten-year U.S. note yield at 4.27%

** As per NSDL data, foreign investors bought a net $368.7 million worth of Indian shares on March 20

** NSDL data shows foreign investors bought a net $9.5 million worth of Indian bonds on March 20

(Reporting by Nimesh Vora; Editing by Sonia Cheema)