INDIA RUPEE-Rupee tiptoes higher, near-tenor volatility touches six-month peak

By Jaspreet Kalra

MUMBAI, Dec 10 (Reuters) - The Indian rupee firmed slightly on Wednesday as buoyant demand to buy dollars at the daily reference rate was blunted by inflows likely linked to equity fund raises with traders also flagging a dip in trading volumes near the end of the year.

The rupee INR=IN nudged higher to 89.80 per U.S. dollar, as of 10:30 a.m. IST, up from its close at 89.8750 in the previous session.

Competing portfolio flows, heightened demand to buy dollars at the daily reference rate published by the Reserve Bank of India, alongside routine merchant activity were among the factors influencing the rupee on the day, traders said.

The currency has consolidated in a 89.75-90.30 band after hitting its all-time low of 90.42 last week. The slump and two-sided moves thereafter have contributed to boosting its 1-month realised volatility to near 5.5%, its highest since June.

In the medium term though, analysts and traders reckon the rupee's fortunes hinge on how the U.S.-India trade negotiations pan out.

"INR could get support if a trade deal between the U.S. and India is announced, especially as we head into favourable seasonality. However, absent a renewed equity or growth narrative, INR gains could be short-lived," analysts at Citi said in a note.

In the absence of a quick deal with Washington, India's largest private lender HDFC Bank expects the rupee to weaken to 92 per dollar.

Elsewhere, Asian currencies were shuffling in narrow bands while the dollar index was also little changed at 99.2 as investors trod cautiously ahead of the Federal Reserve's policy decision where a 25-basis-point cut is widely expected.

Traders will also parse Fed Chair Jerome Powell's comments for clues on the central bank's monetary policy path for 2026.

Investors have been dialling back on expectations of rate cuts in 2026 on lingering inflation concerns and expectations of a more resilient U.S. economy.