Rupee to inch up before US inflation; remains hemmed in by RBI, importer flows
The Indian rupee is poised to open slightly higher on Friday, with the Reserve Bank of India’s dollar sales and importer hedging likely keeping the dollar/rupee pair locked in a narrow range.
The 1-month non-deliverable forward indicated the rupee will open in the 87.76-87.82 range versus the U.S. dollar, having settled at 87.84 on Thursday.
Currency traders point out that the RBI has been actively selling dollars through state-run banks whenever the rupee weakens to near 88, while importer hedging demand remains high, keeping the pair locked in.
The rupee has been stuck in a 20-paisa corridor for the past four sessions, following a bout of heavy RBI intervention that drove the currency rally past the 88 handle.
"Since the RBI’s flush-out, volatility has been low - surprisingly so," said a currency dealer at a private bank.
"We’re seeing very tight intraday ranges — there’s just no follow-through either way with the central bank sitting heavy on topside."
The rupee has further drawn support from a pickup in equity portfolio flows this month, with foreign investors turning net buyers of local shares in October. The positive flow momentum alongside RBI intervention has helped cushion the currency, bankers say.
ASIAN CUES
Asian currencies were mixed and largely range-bound on Friday, with traders awaiting the release of September U.S. inflation data, delayed by the U.S. federal shutdown, later in day.
For next week’s Federal Reserve meeting, markets have fully priced in a 25-basis-point rate cut.
The inflation data could offer clues on whether a similar-sized cut will follow at the Fed’s December meeting.
While policymakers have signalled a 25-basis-point reduction next week, they remain cautious on the path beyond October, ANZ Bank said in a note.
KEY INDICATORS:** One-month non-deliverable rupee forward at 87.88; onshore one-month forward premium at 14 paise
** Dollar index up at 99
** Brent crude futures down 0.6% at $65.6 per barrel
** Ten-year U.S. note yield at 4%
** As per NSDL data, foreign investors bought a net $87.1mln worth of Indian shares on Oct. 20
** NSDL data shows foreign investors bought a net $0.7mln worth of Indian bonds on Oct. 20
