India’s Rupee Weakens as U.S. Debt-Deal Optimism Boosts Dollar

India’s rupee fell for a second day against the dollar, which was buoyed by signs of a compromise among U.S. lawmakers that could avert an unprecedented default in the world’s biggest economy.

House Republican and Senate Democratic leaders are open to a short-term increase in the $16.7 trillion debt ceiling, according to congressional aides who spoke on condition of anonymity. The Bloomberg Dollar Index, which tracks the greenback against 10 major counterparts, extended gains today after yesterday surging the most since Sept. 5. The rupee’s losses will be limited amid optimism India’s trade deficit will narrow, according to FirstRand Ltd.

“The U.S. is driving the world economy and so they are unlikely to not reach an agreement,” said Paresh Nayar, head of currency and money markets at FirstRand in Mumbai. “So the dollar is showing some strength” and affecting the exchange rate, he said.

The rupee dropped 0.5 percent to 62.215 per dollar as of 10:22 a.m. in Mumbai, according to prices from local banks compiled by Bloomberg. The currency will probably trade between 62 and 62.30 today in the absence of fresh news, Nayar forecast. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, was little changed from yesterday at 15.12 percent.

India’s trade deficit was $6.76 billion in September, the lowest since March 2011, official data showed yesterday. Exports rose 11 percent from a year earlier and imports fell 18 percent.

Offshore Bond

India’s current-account deficit in the year through March 2014 may come in about 14 percent lower than the Finance Ministry has targeted, easing pressure on the rupee, Chakravarthy Rangarajan, chairman of the Prime Minister’s Economic Advisory Council, said in an interview yesterday.

International Finance Corp., the World Bank’s investment arm, plans to sell a record $1 billion of rupee bonds offshore to fund investments in India, it said yesterday.

“The announcement of the bonds issuance does not have direct implications towards altering the capital inflows arithmetic,” Gaurav Garg, a strategist at Citigroup Inc. in Singapore, wrote in a research report today. “However, the step in the right direction towards greater capital account convertibility should support investor confidence further.”

One-month onshore rupee forwards fell 0.4 percent to 62.695 per dollar, data compiled by Bloomberg show. Offshore non-deliverable contracts declined 0.6 percent to 62.80. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.

To contact the reporter on this story: Jeanette Rodrigues in Mumbai at jrodrigues26@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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