Rupee to hover near record low, central bank counted on to support
The Indian rupee is likely to hover near its all-time low at open on Friday, unable to benefit from a drop in U.S. bond yields, with traders expecting intervention from the Reserve Bank of India to continue limiting the currency's losses.
Non-deliverable forwards indicate rupee will open at around 83.73-83.74 against the U.S. dollar, marginally weaker than its close at 83.7175 in the previous session.
The rupee had declined to its all-time low of 83.7450 on Wednesday.
The local currency has stayed under pressure for the majority of the last two weeks due to equity-related outflows and a prevailing bias towards steady depreciation. The decline came despite positive cues such as the Federal Reserve's signalling a likely interest rate cut in September.
The dollar index was at 104.39 after rising nearly 0.3% on Thursday, as concerns about geopolitical tensions gave it a safe-haven boost and also helped drive U.S. bond yields lower.
The 10-year U.S. Treasury yield declined to a six-month low of 3.94% in Asia trading with a surprise weakness in U.S. manufacturing data sparking concern that the economy could be on course for a hard landing.
The rupee appears to be "headed lower steadily," with a strong local appetite to buy dollars limiting gains while the Reserve Bank of India's interventions keep sharp declines at bay, a foreign exchange trader at a state-run bank said.
"We expect the (Indian) central bank to continue to intervene and hence keep FX volatility at decadal lows," MUFG Bank said in a note.
Asian currencies were mixed on Friday, with the Korean won down nearly 0.5%, while the offshore Chinese yuan and the Thai baht gained slightly.
Investors will pay close attention to a key U.S. jobs report due later on Friday alongside remarks from Fed policymakers.
KEY INDICATORS:
** One-month non-deliverable rupee forward at 83.82; onshore one-month forward premium at 7.75 paisa
** Dollar index at 104.39
** Brent crude futures up 0.4% at $79.83 per barrel
** Ten-year U.S. note yield at 3.95%
** As per NSDL data, foreign investors sold a net $340.78 million of Indian shares on July 31
** NSDL data shows foreign investors bought a net $203.9mln worth of Indian bonds on July 31
