The Indian rupee reversed early gains to weaken slightly on Wednesday, pressured by dollar demand spurred by maturity of positions in the non-deliverable forwards (NDF) market alongside weakness in regional peers such as the Chinese yuan.
The local currency was at 85.8575 against the U.S. dollar, as of 11:40 a.m. IST, down about 0.1% after hitting a peak of 85.6950 earlier in the session.
The dollar index was up 0.1% at 104.3, while most Asian currencies were lower, with the offshore Chinese yuan declining to 7.27.
Appetite for dollars at the daily reference rate maintained pressure on the rupee, a trader at a state-run bank said. The reference rate, or the daily fix, was last quoted at a 0.50/0.60 paisa premium, signalling strong dollar bids, as per the trader.
Despite slipping on Wednesday, the rupee has outperformed its major Asian peers this month, aided by dollar inflows spurred by repatriation of corporate profits and a pick in foreign portfolio inflows as well.
Overseas investors have bought more than $2 billion worth of Indian shares in the last four days, while month-to-date inflows into bonds stand at little over $3 billion.
"For the medium term, any uptick in USD/INR could offer selling opportunities, while further improvement in the rupee's fundamentals may push the pair toward 85.20," said Amit Pabari, managing director at forex advisory firm CR Forex.
Traders will also be on guard for developments related to U.S. tariff policies, with reciprocal trade levies set to be announced on April 2.
For its part, India is open to cutting tariffs on more than half of U.S. imports worth $23 billion in the first phase of a trade deal that the two nations are negotiating, as it looks to mitigate the impact of reciprocal tariffs, Reuters reported on Tuesday.
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