Dollar strength keeps rupee on back foot; RBI counted on for support
The Indian rupee faces renewed pressure on Monday following a fresh rally in the dollar, though expectations of central bank support are seen keeping the currency from slipping to a record low at open.
The one-month non-deliverable forward (NDF) indicated the rupee will open in the 88.74–88.78 range to the dollar, compared with Friday's level of 88.7650, just shy of the lifetime low of 88.80 hit in mid-October.
The rupee has slipped back to its weakest levels after a brief respite engineered by heavy central bank intervention about two weeks ago. The intervention had helped the currency rally to near the 87.60 level.
Bankers said persistent importer hedging, NDF expiries and renewed strength in the dollar have all contributed to the renewed pressure on the local unit.
The Reserve Bank of India has appeared active in the latest phase of the rupee’s decline, with traders citing its presence through state-run banks.
However, bankers said the central bank does not seem to be defending any specific level.
"While they haven’t defended any particular level recently, I would expect the RBI to step in around 88.80,” a trader at a private bank said.
"That’s where they acted last time, and staying away now could risk a large move higher (on dollar/rupee).”
FED BOOST TO DOLLAR
The dollar index firmed to a near three-month high on Monday, as expectations of a December rate cut by the Federal Reserve faded.
A series of Fed officials on Friday voiced unease over the central bank’s decision to cut policy rates last week, reinforcing Chair Jerome Powell’s remark that a rate cut in December is "not a foregone conclusion, far from it."
Market pricing now implies roughly a two-in-three chance of a cut next month, down from nearly 90% before Powell's remarks.
KEY INDICATORS:
** One-month non-deliverable rupee forward at 88.84/88.90; onshore one-month forward premium at 13.25 paise
** Dollar index at 99.74
** Brent crude futures up 0.5% at $65.1 per barrel
** Ten-year U.S. note yield at 4.08%
** As per NSDL data, foreign investors sold a net $288.1 million worth of Indian shares on Oct 30
** NSDL data shows foreign investors sold a net $86 million worth of Indian bonds on Oct. 30
