Rupee likely to open higher as Fed outlook pushes back dollar
The Indian rupee is expected to open stronger on Thursday, tracking gains in Asian peers after an anticipated U.S. Federal Reserve rate cut and a less-hawkish-than-feared outlook triggered a broad retreat in the dollar.
The 1-month non-deliverable forward indicated the rupee will open near 89.85 range versus the dollar, after having settled at 89.9650 in the previous session.
A sharply divided U.S. Fed cut interest rates on Wednesday, with Chair Jerome Powell saying in a post-decision press briefing that another rate hike is unlikely.
The less-hawkish-than-expected tilt in Powell's remarks pushed the dollar and U.S. Treasury yields lower, while sparking a Wall Street rally that carried over to Asian stocks.
The dollar index was hovering near a two-month low of 98.58 after declining 0.6% on Wednesday, while equity futures pointed to a positive kick-off for Indian stocks as well.
Traders reckon that the broadly softer dollar could offer transient relief to the rupee, which had declined to its all-time low of 90.42 last week, but has since been consolidating above that level.
The medium-term outlook for the currency though continues to be strained by the paucity of dollar flows as foreign investors continue to pull out of local stocks and a missing trade deal with U.S. bogs down sentiment.
"We think the peak INR underperformance against the USD is behind us. Still, we expect the INR to be range-bound, if the U.S. trade-related uncertainty abates and capital flows recover, given we expect the RBI to replenish FX reserves amid higher dollar inflows," analysts at Goldman Sachs said in a note.
The firm has revised its forecasts for the rupee lower to 91 over the next 6 and 12 months, down from 87.50 and 86.50, respectively.
KEY INDICATORS:
** One-month non-deliverable rupee forward at 90.13; onshore one-month forward premium at 26 paisa
** Dollar index at 98.57
** Brent crude futures up 0.4% at $62.4 per barrel
** Ten-year U.S. note yield at 4.14%
** As per NSDL data, foreign investors sold a net $236.5mln worth of Indian shares on December 9
** NSDL data shows foreign investors sold a net $36.6mln worth of Indian bonds on December 9
