Rupee to see more losses on hawkish Fed, RBI intervention likely
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The Indian rupee is expected to extend its decline on Friday, weighed by a rising dollar index and U.S. yields following hawkish comments from Federal Reserve officials.
Non-deliverable forwards indicate rupee will open at around 82.70-82.75 to the U.S. dollar compared with 82.60 in the previous session. The local currency is near the lowest level in almost two months.
"Expect RBI (Reserve Bank of India) to intervene right at the open," a forex spot trader said. "Highly doubt that RBI will allow a move above 82.80-83.00 (on USD/INR). That would just make it all the worse for the rupee at a time when it is already under significant pressure."
USD/INR overnight swap rate will be a key factor to watch besides the RBI, he added. The overnight swap rate posted a sizeable decline, which traders said was likely due to a cash dollar shortage.
The dollar index inched higher in Asia to add to Thursday's rally, reaching its highest level since mid-March.
Asian currencies declined, with the Chinese yuan once again leading the way. The offshore yuan dropped to 7.0750 to the dollar, a level last seen in December.
Higher U.S. yields boosted demand for the dollar. The 2-year U.S. yield climbed to 4.28% on comments by Fed officials and U.S. labour market data.
Two Fed policymakers said on Thursday that U.S. inflation does not look like it is cooling fast enough to allow the central bank to pause its interest-rate-hike campaign.
Meanwhile, the number of Americans filing new claims dropped more than expected, suggesting a resilient labour market.
"The current strength of the labour market does not support the Fed's view that the unemployment rate will lift to 4.5% by year-end," ANZ said in a note
The odds of a Fed rate hike in June rose to more than 30%.
KEY INDICATORS: ** One-month non-deliverable rupee forward at 82.86; onshore one-month forward premium at 8.5 paisa ** USD/INR NSE May futures settled on Thursday at 82.5975 ** USD/INR May forward premium at 2 paisa ** Dollar index up at 103.55 ** Brent crude futures up 0.5% at $76.3 per barrel ** Ten-year U.S. note yield at 3.64% ** SGX Nifty nearest-month futures up 0.2% at 18,210 ** As per NSDL data, foreign investors bought a net $97.8mln worth of Indian shares on May. 17
** NSDL data shows foreign investors bought a net $182.5mln worth of Indian bonds on May. 17
