Rupee ends lower pressured by weaker yuan, importer dollar bids

The Indian rupee weakened on Tuesday, hurt by the offshore Chinese yuan's decline to a seven-month low and dollar demand from local importers.

The rupee closed at 83.5050 against the U.S. dollar, lower than its close at 83.4375 in the previous session. The currency fell to 83.5650 early in the session but pared losses in the latter half.

The dollar index rose 0.1% to 106 while Asian currencies declined. The Japanese yen fell to its weakest level in 38 years while the offshore Chinese yuan hovered close to its lowest since November.

"Weakness in the yen is weighing on yuan, which is likely to keep the rupee under pressure. Unless we see a reversal in the yuan, we may not see significant appreciation in the rupee," FX advisory firm IFA Global said in a note.

A rise in U.S. bond yields on growing prospects of a second presidential term for Donald Trump boosted the greenback even as economic data released on Monday signalled the economy is cooling.

Dollar demand from importers, including oil companies, also weighed on the rupee, traders said.

Investment bank Nomura is wagering that the rupee will rally by 2% through August-end on the back of portfolio inflows, relatively less aggressive central bank interventions to accumulate FX reserves and potential U.S. rate cuts.

Investors await U.S. job openings data and remarks from Federal Reserve Chair Jerome Powell, both due later in the day, for cues on when the central bank will begin easing policy rates.

Interest rate futures are currently pricing in nearly two 25 basis point rate cuts over 2024.