Rupee rally set to hit speed bump on soggy Asia FX, risk-off tone
The Indian rupee's rally, triggered by heavy central bank intervention, may lose steam on Friday following weakness in Asian peers and fading risk appetite.
The 1-month non-deliverable forward indicated the rupee will open in the 87.90-87.96 range versus the U.S. dollar, having settled at 87.82 on Thursday.
The Indian currency rallied over 1% in the past two sessions, following what traders said was deliberate intervention by the Reserve Bank of India to knock the dollar/rupee pair lower.
"RBI’s done the hard yards once - the question now is, if we see 88 again, do they come in again? What’s their new tolerance level?" a currency trader at a Mumbai-based bank said.
He added that positioning is now more balanced after the recent washout of long-dollar bets, with further moves likely to depend on how importers respond, other flow dynamics and to a lesser extent, performance by Asian peers.
ASIA STRUGGLES
Asian currencies were mostly weaker on Friday, weighed by tepid risk appetite. U.S. equities fell on Thursday, and futures pointed to further losses ahead.
Reflecting the risk-off tone, U.S. Treasuries rallied, pushing 10-year yields below 4%. Futures now imply a small probability that the Federal Reserve could cut rates by a cumulative 50 basis points over its next two meetings this year.
Two US regional banks reporting loan losses tied to funds that invest in distressed commercial mortgages raised concerns about the health of US consumer credit, hurting risk appetite, Morgan Stanley said in a note.
Fed Governor Christopher Waller said he supports another rate cut this month, citing mixed signals from the labor market — a comment that reinforced investors’ dovish outlook on U.S. rates.
The dollar index declined, tracking the fall in U.S. yields. The safe-haven Japanese yen rallied to near 150 to the U.S. dollar.
KEY INDICATORS:
** One-month non-deliverable rupee forward at 88.12; onshore one-month forward premium at 12.75 paise** Dollar index down at 98.22
** Brent crude futures down 0.5% at $60.8 per barrel
** Ten-year U.S. note yield at 3.95%
** As per NSDL data, foreign investors bought a net $78.8mln worth of Indian shares on Oct. 15
** NSDL data shows foreign investors bought a net $172.9mln worth of Indian bonds on Oct. 15
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