Indian rupee poised for weekly decline, lags most Asian currencies

By Nimesh Vora

MUMBAI (Reuters) - The Indian rupee was headed for a weekly decline on Friday despite softer-than-expected U.S. inflation data, with some traders saying the local currency underperformed its Asian peers due to a one-time dollar outflow.

The rupee was trading at 79.70 versus the dollar by 0912 GMT, compared with 79.63 in the previous session. The local currency is down 0.6% from a week ago.

By comparison, the onshore Chinese yuan was up 0.4% this week, the Indonesian rupiah rose 1.4% and the Singapore dollar by 0.8%. The dollar index was down 1.3% from last Friday amid robust risk appetite and slowing U.S. inflation.

Meanwhile, foreign investors bought about $2.4 billion of Indian shares so far this month and $3.3 billion since July 29.

"There is seemingly a daily flow mismatch with India running a record trade deficit. The pickup in foreign equity inflows is not able to plug it," Jayaram Krishnamurthy, head of research and advisory at Almus Risk Consulting, said.

India reported a record trade deficit of $31 billion for July, prompting some economists to revise their projections for the current account deficit and balance of payments higher.

The one-off dollar outflow was rumoured to be for some defence-related payments this week, Krishnamurthy added.

"Liquidity in the USDINR has been thin. Thus one-off flows are creating quick one-sided moves," said Kunal Sodhani, vice president at Shinhan Bank, adding that a fall in crude prices could potentially help the rupee, but the decline needed to sustain.

Brent crude on Friday was little changed at $99.62.

(Reporting by Nimesh Vora; Editing by Neha Arora)