The rupee closed at 86.4575 against the U.S. dollar, down 0.2% on the day.
The dollar index rose 0.1% to 108.289 while Asian currencies were mostly weaker, with the Malaysian ringgit down 0.4% and leading losses.
Traders also pointed to dollar demand from foreign banks weighing on the rupee.
Despite weakening on the day, the prevailing bearish bias on the rupee appears to have dampened in January as suggested by a cooling in non-deliverable forward (NDF) points and a decline in a volatility gauge.
“The move lower in NDF points suggests a dampening of the upward bias on USD/INR and a squaring of positions by offshore market participants,” said Sameer Karyatt, head of trading for Global Financial Markets. The rupee has declined about 3% since Donald Trump won the election in the United States. The currency hit an all-time low of 86.6475 last week. This week, though, Asian currencies found some breathing room and the dollar cooled off from an over two-year high after Trump stopped short of imposing trade tariffs in his initial days in office.
The U.S. President though has stated that he intends to impose import levies on Canada, Mexico and China starting Feb. 1.
“Overall recent developments indicate that initial US dollar weakness at the start of Trump’s second term could prove to be short-lived. Price action this week again highlights that long US dollar positioning was a very crowded trade,” MUFG Bank said in a note.
Investors will now take their cues from a spate of central bank policy decisions with the Bank of Japan’s decision due on Friday followed by the Federal Reserve and the European Central Bank next week.
