Rupee to hold near all-time low on higher US yields, upbeat dollar
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The Indian rupee is likely to hold near lifetime low on Wednesday after U.S. Treasury yields climbed to a three-month high with eyes on the presidential election, helping the dollar extend its rally.
The 1-month non-deliverable forward indicated that the rupee will open at 84.0750-84.0850 to the U.S. dollar compared with 84.0775 in the previous session and the all-time low of 84.0825 hit on Tuesday.
The run-up in the dollar and U.S. yields, and the selloff in Indian equities amid foreign outflows have recently been weighing on the rupee. The Reserve Bank of India has helped the currency weather the challenges, and the rupee's drop has been measured.
"RBI remains the key factor here, and one can expect that even if the rupee depreciates from here, the quantum will be moderate and the broader theme of stability will be maintained by the RBI," said Srinivas Puni, managing director at forex advisory firm QuantArt Market Solutions.
The dollar index topped 104 on Tuesday to reach the highest in two-and-a-half months, boosted by the rally in U.S. rates. The 10-year U.S. Treasury yield hit a three-month high.
The resilient U.S. economy, the possibility of stickier inflation and the prospects of Donald Trump winning the U.S. elections have prompted investors to demand higher yields. The 10-year U.S. yield is now up 60 basis points from the low hit mid of last month.
Alongside the rise in U.S. rates, investors have moderated their expectations on Federal Reserve rate cuts. The U.S. central bank repeating a 50 bps rate cut at their next meeting is completely off the table.
It is highly likely that the Fed will decide on a smaller 25 bps rate cut with a small possibility of no cut at all.
KEY INDICATORS:
** One-month non-deliverable rupee forward at 84.20; onshore one-month forward premium at 11 paise
** Dollar index up at 104.12
** Brent crude futures down 0.2% at $75.9 per barrel
** Ten-year U.S. note yield at 4.23%
** As per NSDL data, foreign investors bought a net $1,273.8mln worth of Indian shares on Oct. 21
** NSDL data shows foreign investors sold a net $34.1mln worth of Indian bonds on Oct. 21
