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Importers, custodial banks pull rupee down; Asian peers inch up

FILE PHOTO: Illustration photo of an India Rupee note

By Nimesh Vora

MUMBAI (Reuters) - The Indian rupee, unlike its Asian peers, declined against the U.S. currency on Monday on dollar demand from foreign banks and importers, according to traders.

The rupee was trading at 81.6650 at 10:40 a.m. IST, down from 81.5225 in the previous session. Other Asian currencies advanced, led by the onshore Chinese yuan.

The onshore yuan, resuming trading after a week, climbed 0.7% to near 6.75 to the dollar.

The rupee's listless move despite the Asian cues is not a major surprise, a spot trader at a private sector bank said. Foreign banks were on the bid on USD/INR at open, and importers were likely active, the trader added.

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The U.S. Federal Reserve policy decision and India's federal budget, both due on Feb. 1, will be crucial to the rupee this week.

For the Fed, a key marker would be how the officials respond to markets pricing in rate cuts later this year. The actual rate decision is unlikely to have an impact with a 25 basis points hike fully baked in.

"Officials certainly appear to be backing "standard" 25bp increases from now on but most are warning that there is still more work to be done," ING Bank said in a note.

"Consequently, we expect to hear that ongoing interest rate hikes are "appropriate" with the balance sheet shrinking strategy remaining in place."

Meanwhile, Indian equities are having a choppy trading day following a two-day selloff fuelled by the short seller report on the Adani Group. The Nifty 50 Index fell to a more than three-month low in early trading before recouping losses.

For the rupee, the uncertainty on Adani could impact foreign flows. Foreign investors were net sellers of over $700 million of Indian equities on Friday, according to preliminary exchange data.

(Reporting by Nimesh Vora; Editing by Dhanya Ann Thoppil)