Rupee's negative drift demands central bank firepower
The Indian rupee is anticipated to face a difficult session on Friday, with most traders predicting that the central bank will likely intervene to prevent the currency from hitting a new all-time low.
The 1-month non-deliverable forward indicated the rupee will open flat-to-slightly weaker versus the U.S. dollar compared to Wednesday's close of 88.69. India financial markets were shut on Thursday.
The rupee has been pressured in recent weeks by relentless dollar demand from importers, with sentiment remaining firmly skewed against the currency amid equity outflows and U.S.-India trade frictions.
The Reserve Bank of India has been stepping in to ensure the rupee’s decline remains orderly. Central bank Governor Sanjay Malhotra reiterated earlier this week that the RBI is not defending any particular level of the currency and is instead focused on containing volatility and keeping moves measured.
The RBI support is "keeping things calm" for now, a currency trader at a bank said. However, overall sentiment remains weak and the market wants to test the downside, he added.
Currency traders are closely watching the 88.80 level, the lifetime low for the rupee hit on Monday. With broad dollar demand keeping the pressure on, this level is seen a key marker for potential intervention or a pause in the currency’s slide.
ASIAN CUES
Asian cues did not lend any particular direction to the rupee on Friday, with peers mixed and the dollar index marginally higher.
A U.S. government shutdown has paused the release of key economic data, including Friday’s closely watched September jobs report, depriving markets of an important gauge for the Federal Reserve’s rate outlook.
With the official jobs report on hold, Wednesday’s private payrolls data drew heightened attention. The weak reading has increased expectations of a Federal Reserve rate cut this month.
We could see "a longer tail effect" from the private jobs data, given the uncertainty around the payrolls release, ING Bank said in a note.
KEY INDICATORS:
** One-month non-deliverable rupee forward at 88.86; onshore one-month forward premium at 14 paise
** Dollar index up at 97.86
** Brent crude futures up 0.3% at $64.3 per barrel
** Ten-year U.S. note yield at 4.1%
** As per NSDL data, foreign investors sold a net $453.4 million worth of Indian shares on September 30
** NSDL data shows foreign investors sold a net $12.1 million worth of Indian bonds on September 30
