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Rupee rally confronted by pushback from Fed officials on rate cuts
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The Indian rupee on Monday will likely face challenges amid weakness in Asian peers after top Federal Reserve officials downplayed expectations of imminent interest rate cuts.
Non-deliverable forwards (NDFs) indicate the rupee will open at around 83.02-83.04 to the U.S. dollar, compared with its previous closing at 83.00.
The rupee on Friday had its best session in more than eight months, attributed to inflows, stop losses and most importantly the Reserve Bank of India's decision not to intervene.
While Asian currencies are down and NDFs indicate a quiet open, "it could very well be" that rupee "does well, based on momentum", a foreign exchange trader at a bank said.
"I would think traders would want to know what is the RBI's tolerance" for how much USD/INR can drop, he said.
Asian currencies were down 0.2-0.4% after Fed officials pushed back on bets that the U.S. central bank will cut rates aggressively next year.
New York Fed President John Williams said the Fed "isn't really talking about rate cuts right now" and it's "premature" to speculate about them, in a CNBC interview.
These comments "seem highly orchestrated" and intended to stop prevent financial conditions from "getting too euphoric", said Chris Weston, head of research at Melbourne-based broker Pepperstone.
Williams was the first official to comment after Fed's interest rate projections and Chair Jerome Powell's remarks last week led investors to factor in a total of 150 basis points of rate cuts next year.
Further, Atlanta Fed President Raphael Bostic said Friday the U.S. central bank can begin reducing interest rates "sometime in the third quarter" of 2024 if inflation falls".
Investors, meanwhile, have priced in a high probability of rate cuts in March 2024.
U.S. Treasury yields near maturity rose on Friday, prompting the dollar to rise against its major peers.
KEY INDICATORS: ** One-month non-deliverable rupee forward at 83.10; onshore one-month forward premium at 7.5 paisa ** Dollar index at 102.54 ** Brent crude futures up 0.5% at $76.9 per barrel ** Ten-year U.S. note yield at 3.93% ** As per NSDL data, foreign investors bought a net $416.8mln worth of Indian shares on Dec. 14
** NSDL data shows foreign investors bought a net $185.3mln worth of Indian bonds on Dec. 14
