Rupee recovery fizzles with US tariff woes fuelling persistent dollar buying

The Indian rupee's opening recovery on Thursday quickly faded, with importers stepping up hedges on conviction that the steep U.S. tariffs leave little room for upside.

The rupee rose to 87.5250 before drifting weaker on what bankers said was broad-based dollar demand. It was last at 87.6575, nearly unchanged from Tuesday. Indian markets were shut on Wednesday for a local holiday.

"Importers are active, and fair enough - they and we are convinced the rupee isn't moving higher from here," said an FX sales dealer at a foreign bank.

The extent of rupee weakness is seen largely as a function of the Reserve Bank of India's (RBI) actions.

The central bank likely intervened on Tuesday after the currency came under pressure following Washington's confirmation of additional tariffs on Indian goods.

In the near-term, the dollar-rupee pair could trade in a range of 87.50-88, with the RBI's intervention determining whether those levels hold, HDFC Bank said.

"While for now the central bank could focus on bringing stability in the pair (stalling the rupee's move above 88), an eventual break to a range of 88-88.50 is likely over the coming weeks..."

The rupee, in addition to hedging demand, was contending with weak risk appetite. Indian equities slipped on the day, extending Tuesday's selloff.

The rupee underperformed most of its Asian peers, which rose on the day, amid expectations of Federal Reserve rate cuts and U.S. President Donald Trump's push to influence the monetary policy.