Rupee Falls Against US Dollar: Impact of US Tariffs

Mumbai, Aug 26 (PTI) The rupee depreciated 12 paise to close at 87.68 (provisional) against the US dollar on Tuesday, tracking weak domestic markets after the US issued a draft notice on plans to implement an additional 25 per cent tariff on Indian products.

Forex traders said the rupee lost momentum as worries over the looming 25 per cent additional US tariff on Indian goods, set to take effect from August 27, drove strong dollar demand from importers.

At the interbank foreign exchange market, the rupee opened at 87.74, then touched an early high of 87.63 and an intraday low of 87.80 against the US dollar.

The domestic unit settled at 87.68 (provisional), registering a decline of 12 paise over its previous close.

On Monday, the rupee pared initial gains to settle 4 paise lower at 87.56 against the US dollar.

"The rupee fell against the US Dollar on weak domestic markets as US President Donald Trump said that 50 per cent tariffs (including 25 per cent additional tariffs) on India will begin from August 27, and more tariffs against Russia and its trading partners if there is no progress in peace talks," said Anuj Chaudhary, Research Analyst Currency and commodities Mirae Asset ShareKhan.

The US has issued a draft notice detailing plans to implement the additional 25 per cent tariff on Indian products, as previously announced by President Donald Trump.

The steep 50 per cent tariff on Indian goods entering the United States will take effect from August 27, severely impacting several labour-intensive export sectors, such as shrimp, apparel, leather and gems & jewellery.

The high additional import duties would affect more than half of the USD 86 billion Indian exports to America, while the remaining items, including pharmaceuticals, electronics, and petroleum products, will continue to be exempt from the levy.

However, softening of crude oil prices after gains over the past four sessions cushioned the rupee's slide.

Brent crude, the global oil benchmark, was trading 1.48 per cent lower at USD 67.78 per barrel in futures trade.

Meanwhile, the US dollar fell early Tuesday after Trump fired US Federal Reserve Governor Lisa Cook.

The dollar index, which gauges the greenback's strength against a basket of six currencies, fell 0.05 per cent to 98.37.

"We expect the rupee to trade with a negative bias on trade tariff uncertainty and decline in domestic equities. FII outflows may also weigh on the rupee. However, weakness in the US Dollar and softening of crude oil prices from higher levels may support the domestic currency," Chaudhary said.

Traders may take cues from durable goods orders and consumer confidence data from the US. USD/INR spot price is expected to trade in a range of 87.50 to 88, he added.

On the domestic equity market front, the Sensex tumbled 849.37 points to settle at 80,786.54, while Nifty dropped 255.70 points to 24,712.05.

Foreign Institutional Investors offloaded equities worth Rs 2,466.24 crore on Monday, according to exchange data.