INDIA RUPEE-Rupee treads water after opening dip, forward premiums slip

By Jaspreet Kalra

MUMBAI, March 27 (Reuters) - The Indian rupee inched lower on Thursday, adjusting for the shift in the spot date to the next fiscal year and pressured by importers' dollar bids, even as its Asian peers rose against a broadly weaker dollar.

The rupee INR=IN was at 85.77 against the U.S. dollar as of 11:15 a.m. IST, after touching a low of 85.91 in early trade.

The dollar index was down 0.3% at 104.3, reversing early gains. The rupee's opening dip reflected the carry cost - of about 10-12 paisa - between the current fiscal year's last day, on March 31, and next fiscal year's first trading day, on April 2.

On Wednesday, U.S. President Donald Trump announced plans for long-promised 25% tariffs on automotive imports, set to go into effect on April 2, but said reciprocal levies on all countries, also planned for the same day, will be "very lenient".

Concerns about the impact of Trump's tariffs on the U.S. economy have weighed on the dollar, putting it on course for a second straight month of losses against major peers.

The rupee has been able to capitalise on this, aided by inflows spurred by the repatriation of dollar-based corporate profits and a pick up in foreign inflows.

The domestic currency has erased nearly all of its losses so far this year and has risen 2% in March, outpacing its regional peers.

"While fiscal-year end (i.e. Mar) tailwinds might also be propping the currency, the recent rally signals increased scope for two-way move in the USD/INR, and therefore higher volatility," DBS Bank said in a note.

The rupee's average 1-month implied volatility INR1MO=, a gauge of future expectations, has risen to 3.4% between January and March so far, higher than the 2.25% seen in the previous three-month period.

Meanwhile, dollar-rupee forward premiums dipped, with the 1-month forward premium pegged back by a decline in the dollar-rupee overnight swap rate, while an uptick in near-tenor U.S. bond yields weighed on far forward premiums.