Fed cut certainty, tariff worries keep rupee boxed in
The Indian rupee is likely to open flat on Monday, as traders balance certainty around a Federal Reserve rate cut with ongoing headwinds from U.S. trade tariffs.
The one-month non-deliverable forward points to the rupee opening largely unchanged from Friday’s level of 88.2750.
The currency tumbled to a record 88.4550 last Thursday, with traders flagging thin exporter hedging, a possible outflow and lacklustre portfolio flows. Importers were quick to hedge on any recovery in the rupee, keeping the currency under persistent pressure.
Market participants believe the Reserve Bank of India has been intervening, leaning against the rupee's weakness to keep moves orderly and avoid a deeper sell-off.
"With the way flows are shaping up, the rupee has little room to recover," said a dealer at a state-run bank.
"The RBI's likely presence is helping to contain the pressure and prevent a bigger shakeout."
Support from the RBI and muted moves in other Asian peers have limited the rupee’s losses to just 0.1% so far this month, despite the fresh record lows. However, it remains the worst-performing major Asian currency in September.
ALL ABOUT FED
Forex markets will be squarely focused on the Fed's policy decision on Wednesday, where a 25-basis-point rate cut is fully priced in. Analysts say the bigger driver will be the Fed’s guidance, including its dot plot and commentary on the path ahead.
The main shift since the Fed’s last meeting has been signs of softness in the U.S. labor market, with the July and August jobs reports disappointing. That has investors betting on a cut this week and further easing in October and December.
The key question for the September Fed meeting is whether policymakers will signal that this is likely the first in a series of consecutive cuts, Goldman Sachs said in a note.
While Goldman expects the Fed statement to acknowledge the softening in the labor market, it does not expect a change to the policy guidance or a nod to an October cut.
KEY INDICATORS:
** One-month non-deliverable rupee forward at 88.36; onshore one-month forward premium at 12 paise
** Dollar index down at 97.62
** Brent crude futures up 0.5% at $67.3 per barrel
** Ten-year U.S. note yield at 4.07%
** As per NSDL data, foreign investors sold a net $386.7mln worth of Indian shares on Sept. 11
** NSDL data shows foreign investors bought a net $4.2mln worth of Indian bonds on Sept. 11
