Rising odds of big Fed rate cut following reports likely to boost rupee
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The Indian rupee is expected to rise on Friday after media reports prompted investors to pile into wagers that the U.S. Federal Reserve may cut interest rates by 50 basis points next week.
The 1-month non-deliverable forward indicated that the rupee will likely open at 83.92-83.94 to the U.S. dollar, compared with 83.9650 on Thursday.
The dollar was under pressure following media reports from the Financial Times and the Wall Street Journal, which indicated that the Fed's decision next week on whether to cut rates by 25 basis points or 50 bps might be a line ball call.
This was a surprise to traders who had nearly priced out the probability of a big rate cut, following the U.S. August jobs and inflation report. Probability of 50 bps rate cut has jumped to 40% from 14%, per CME FedWatch Tool.
The increase in possibility of a 50 bps rate cut despite a slightly higher than expected reading on the August U.S. producer price index and in-line with expectations print on initial jobless claims.
The dollar index has dropped to near 101 and is less than half-a-percentage away from the year-to-date low.
With the markets having "swung a touch back" in the direction of a 50 bps Fed cut next week, the dollar is under pressure, ANZ Bank said in a note.
The bank reckons the Fed will not opt for a 50 bps cut and will deliver a 25 bps reduction, noting that "underlying financial and economic conditions do not suggest a more forceful commencement" to the rate cut cycle.
RUPEE REMAINS WELL SUPPORTED AT 84
The rupee on Thursday yet again avoided a dip past the 84 level, thanks largely to intervention by the central bank, said traders. It has now been more than a month that the central bank has managed to prevent the rupee from weakening past 84.
KEY INDICATORS:
** One-month non-deliverable rupee forward at 84.03; onshore one-month forward premium at 8.50 paisa** Dollar index down at 101.02
** Brent crude futures up 0.4% at $72.3 per barrel
** Ten-year U.S. note yield at 3.65%, India 10-yr bond yield at 6.81%
** As per NSDL data, foreign investors bought a net $341.8 mln worth of Indian shares on Sept. 11
** NSDL data shows foreign investors sold a net $22.3 mln worth of Indian bonds on Sept. 11
