By Jaspreet Kalra
MUMBAI (Reuters) – The Indian rupee strengthened on Tuesday after Donald Trump held off on implementing trade tariffs on his first day as U.S. President but said he is considering levies on imports from Canada and Mexico, prompting the dollar to pare initial losses.
The rupee was at 86.4150 against the U.S. dollar as of 09:50 a.m. IST, up 0.2% on the day.
While the dollar slumped on Monday after trade tariffs did not feature prominently in Trump’s inaugural speech, it bounced back when Trump later said he was thinking of a 25% tariff on goods from Canada and Mexico from Feb. 1.
In a presidential memo, Trump directed U.S. federal agencies to probe the risks of large trade deficits “and recommend appropriate measures, such as a global supplemental tariff, or other policies.”
The dollar index was last at 108.3, up 0.3% on the day, while Asian currencies were mostly stronger. The offshore Chinese yuan rose to an over one-month peak but eventually pared gains to trade at 7.27.
“With long U.S. dollar positioning looking stretched, the US dollar is vulnerable to a less aggressive pace of tariff hikes from the Trump administration,” MUFG Bank said in a note.
Trump, in his election campaign, had proposed tariffs of up to 10% on global imports, 60% on Chinese goods and a 25% import surcharge on Canadian and Mexican products.
Traders reckon that the rupee will stay sensitive to moves in the yuan and other regional peers, with the focus squarely on how trade policy shakes out under Trump.
Despite some near-term relief for the rupee, persistent foreign portfolio outflows could keep the currency under pressure, a trader at a mid-sized private bank said.
Foreign investors have withdrawn over $6.5 billion from local stocks and bonds so far in January, the most in any month since last October.
(Reporting by Jaspreet Kalra; Editing by Savio D’Souza)
