Rupee likely under pressure after Fed rate cut bets let up slightly
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The Indian rupee is expected to be under pressure on Wednesday following a broad rally on the U.S. dollar on the back of slight moderation in bets on interest rate cuts by the Federal Reserve.
Non-deliverable forwards indicate the rupee will open marginally weaker to the U.S. dollar from 83.3175 in the previous session.
Asian currencies have begun 2024 "on a very different note" and the rupee "at the margin will feel the impact of that", an FX trader at a bank said.
However, "it is now well established that at times of risk offs and dollar rallies", the rupee is a "good currency to hold" in the Asian currency space, the trader added.
Asian currencies extended Tuesday's decline, squeezed by the rally on the dollar index on the first trading day of the year.
The dollar index and Treasury yields rose and U.S. equities dropped, marking a reversal of the moves witnessed last month.
Expectations around Fed rate cuts this year moderated slightly, helping the dollar and lifting U.S. Treasury yields. Odds of the U.S. central bank cutting policy rates at the March meeting dropped and investors now expect slightly less than 150 basis points (bps) of rate cuts this year.
There was no specific trigger for the change in rate expectations. A few analysts said it was likely that optimism on rate cuts may have over-extended.
There are a slew of U.S. data releases this week which will likely impact the view of investors on rate cuts. U.S. ISM manufacturing number is due on Wednesday, and the ISM services and the monthly job report will be out on Friday. Plus, minutes of the Fed last meeting are due later in the day.
KEY INDICATORS: ** One-month non-deliverable rupee forward at 83.40; onshore one-month forward premium at 8.25 paisa ** Dollar index at 102.16 ** Brent crude futures at $75.9 per barrel; dropped 1.5% on Tuesday ** Ten-year U.S. note yield at 3.94%; rose 8 basis points on Tuesday ** As per NSDL data, foreign investors bought a net $30.4mln worth of Indian shares on Jan. 1
** NSDL data shows foreign investors bought a net $10.4mln worth of Indian bonds on Jan. 1
