INDIA RUPEE-Rupee rises; volatility expectations drop on dwindling worries over US tariffs

By Nimesh Vora

MUMBAI, Jan 24 (Reuters) - The Indian rupee rose on Friday, tracking a Chinese yuan-driven rally in Asian peers, after U.S. President Donald Trump said a trade deal with the country was on the cards, while volatility expectations plunged on relief over the lack of immediate U.S. tariffs on China.

The rupee INR=IN was at 86.31 to the U.S. dollar at 10.20 a.m IST, up from 86.4575 on Thursday. The local currency is poised for a weekly advance, a rare occurrence in recent months.

Trump said on Thursday that his recent conversation with Chinese President Xi Jinping was "friendly", adding he thought he could reach a trade deal with China, which boosted the yuan and its Asian peers. The yuan rose 0.5% to nearly 7.25 to the U.S. dollar.

Earlier this week, Trump had threatened to impose a 10% tariff on Chinese-made goods arriving in the U.S. from Feb. 1. The President had also threatened tariffs on Mexico, Canada and the European Union.

"There have been lot of comments that Trump plans to do this and that. However, there has been no concrete action, which is a relief (for Asia)," a currency trader at a bank said.

"You have to remember that the fear was that Trump on day 1 of his taking office would press on with tariffs."

Volatility expectations in the rupee and other Asian currencies have dropped this week amid a pullback in tariff concerns. The dollar/rupee 1-month implied volatility has declined to 3.3% from more than 4% last week.

For the offshore yuan, it has dropped to 4.5% from over 6%.