MUMBAI, July 04 (Reuters) - The Indian rupee witnessed muted price action on Friday to end the week little changed as traders awaited developments in U.S.-India trade talks, with a positive outcome potentially helping the local currency break past a sticky resistance level.
The rupee closed at 85.3925, down about 0.1% each on the week and day.
The currency had risen to a one-month peak of 85.25 in the previous session but pared gains on Friday after traders scaled back wagers on rate cuts by the Federal Reserve following a stronger-than-expected U.S. labour market report.
On the day, routine dollar demand from importers weighed on the rupee with market participants also avoiding aggressive bullish wagers on the local currency to limit carrying risk over the weekend, a trader at a foreign bank said.
While the rupee has persistently failed to rise and hold above a technical resistance level around 85.35-85.40 over recent sessions, a favourable trade deal with the U.S. may help the currency clear the hurdle, the trader added.
U.S. President Donald Trump has said that Washington will start sending letters to countries on Friday specifying what tariff rates they will face on imports to the United States.
"If Trump's comments prove accurate, then investors will again begin to downgrade growth expectations and upgrade inflation expectations, which will only encourage further dollar selling," MUFG said in a note, referring to the letters.
Earlier in the week, Trump announced a deal with Vietnam, and the White House teased a forthcoming agreement with India. Meanwhile, talks with Japan - the U.S.' closest ally in Asia - have appeared to hit road blocks.
Amid the ongoing uncertainty, analysts have pointed out that India's climbing foreign exchange reserves and the central bank's shrinking forward book are cementing the rupee's defences.
Reporting by Jaspreet Kalra; Editing by Vijay Kishore
Source: Reuters