Lower Fed hike odds, oil dip lend RBI hand in supporting rupee
The Indian rupee faces a less challenging backdrop on Wednesday, after a fall in US rate-hike expectations and slightly softer oil tempered pressure on a currency that has needed regular central bank support.
The rupee is expected to open at 95.94-95.99 per dollar, according to traders after closing Tuesday at 95.98. It fell to a two-month low of 96.1475 before recovering amid likely Reserve Bank of India intervention.
Over the past few weeks, the rupee has repeatedly needed RBI intervention to moderate its decline, with high oil prices, rising US Treasury yields, weak portfolio flows and increased hedging demand weighing on it.
The RBI has been managing the rupee, using its increased FX reserves firepower to prevent external pressures from translating into excess pressure on the currency.
The RBI's resolve to keep the rupee anchored around the 96-per-dollar mark is increasingly evident, putting a floor under the currency while pressure mounts, said Amit Pabari, managing director at FX advisory firm CR Forex.
A dovish repricing in expectations for another Federal Reserve rate hike next month relieves pressure on the RBI to an extent.
The odds have fallen to 44% from nearly 70% amid softer US activity data and more cautious signals from policymakers about the need for an immediate follow-up move.
US consumer confidence fell to its lowest level in more than 12 years in September, while New York Fed President John Williams said there was "no need for urgency" after the September rate increase.
Williams noted that the central bank has time to assess incoming data before deciding on its next move.
Meanwhile, oil prices dropped about 2.5% on Tuesday amid signs that Middle East exports were recovering. [O/R]
