MUMBAI: The Indian rupee is tipped to open higher versus the U.S. currency on Wednesday, shrugging off a record trade deficit and the recovery on the dollar index.

The rupee is expected to open at around 78.60 compared with 78.71 in the previous session. The rupee over the last four sessions has managed to climb from near 79.90 to the current levels, helped by portfolio inflows, dollar sales by exporters and position unwinding.

The 1-month USD/INR non-deliverable forward was at near 78.80.

"We reckon that the rupee's momentum, both onshore and offshore, will lead interbank to ignore the trade deficit numbers. Rupee will likely open slightly higher," a trader at a private bank said.

"However, we doubt that there is much upside for the rupee from current levels."

India's trade deficit in July widened to an all-time high of $31 billion from $26.2 billion in the previous month, primarily driven by the decline in exports. Exports declined to $35.2 billion in July from $40.1 billion.

"We reiterate our view that India's external balances remain under pressure, and we expect the current account deficit at 3.2% of GDP in 2022 given elevated commodity prices, weaker global growth and a relatively resilient domestic economic recovery," Goldman Sachs said in a note.

Meanwhile, the dollar index inched higher in Asia trading, adding to Tuesday's 0.8% advance. The dollar's recovery came alongside a move higher in U.S. Treasury yields.

The 2-year U.S. yield was back above 3% following comments by Federal Reserve officials that prompted traders to reassess the outlook that the central bank could turn dovish early next year.



* One-month non-deliverable rupee forward at 78.82; onshore one-month forward premium at 22.5 paisa

* USD/INR NSE August futures last traded price on Tuesday was 78.8050; August OTC premium at 18 paisa

* Dollar index tad up at 106.29

* Brent crude 0.1% higher at $100.62 per barrel

* Ten-year U.S. yield at 2.7228%. It rose 14 basis points on Tuesday

* SGX Nifty nearest-month futures 0.3% higher at 17,375

* Foreign investors bought net 8.3 billion rupees worth of Indian shares on Aug. 2 (Reporting by Nimesh Vora; Editing by Shounak Dasgupta)