The rupee closed at 86.5675 against the U.S. dollar, up from its close at 86.61 in the previous session.
The dollar index was down 0.2% at 109.1 while Asian currencies were mostly higher between 0.1% and 0.7%.
The offshore yuan rose to a two-week high buoyed by a friendly call between Trump and Chinese President Xi Jinping on Friday and better-than-expected fourth-quarter Chinese economic data.
With Trump set to return to the White House, financial markets are expected to take their cues from policy announcements coming out of Washington this week. U.S. markets are closed on Monday for the Martin Luther King Jr. Day holiday.
The dollar-rupee pair’s implied volatility, a gauge of future expectations, has risen to a multi-month high across tenors, reflecting the uncertainty surrounding Trump’s policies. The 1-month implied volatility rose to a peak of 4.3% on Monday, its highest level since August 2023. “There will be the risk of a correction in the dollar should it look like Trump will be more selective on tariffs after all – but that should probably come at a later stage,” ING Bank said in a note.
Trump previously pledged to impose 10% duties on all U.S. imports and 60% on goods from China.
While Trump’s policy measures may steal the limelight in the near term, persistent foreign portfolio outflows have been a sore point for the rupee.
Overseas investors have net sold about $6.5 billion of local stocks and bonds in January so far, the steepest monthly outflow since October 2023.
