Rupee to push higher on dollar weakness in lead up to Fed meeting
The Indian rupee is expected to open higher on Tuesday, buoyed by the dollar's struggles in the run-up to the U.S. Federal Reserve's policy decision, with traders watching out for potential hints on further rate cuts.
The 1-month non-deliverable forward indicated the rupee will open in the 88.12-88.14 range versus the U.S. dollar, compared with Monday's level of 88.21.
The rupee has managed to recover after sliding to a record low of 88.4550 on Friday.
However, bankers did not cite any specific trigger for the recovery, noting instead that broader Asian currencies have been performing well and that risk appetite remains firm.
They further suggested positioning adjustments may have played a role.
Flows have turned "more two-way" after the lifetime low, and positioning possibly is lighter, a currency trader at a private sector bank said.
"It's just a modest pullback (in dollar/rupee). However, the tide does look a bit better for the rupee, though it hasn't really turned in its favour yet," he said.
If the Fed turns more dovish than the market is braced for, it could squeeze dollar longs and hand the rupee the needed tailwind, he added.
Market participants downplayed the near-term impact of a Bloomberg report that JPMorgan will cut the weight of top bond issuers in its flagship EM index, noting that any reallocation of flows away from India and China toward smaller countries would be a slow process.
POSITIVE ASIAN CUES
Asian currencies and equities advanced on Tuesday and the dollar index slipped, with focus squarely on the Fed meeting. The central bank is widely expected to deliver a 25-basis-point rate cut on Wednesday, with investors watching closely for signals on the depth of future reductions.
Investors are currently pricing in two additional rate cuts by the Fed following Wednesday’s decision, expected at the October and December meetings.
KEY INDICATORS:
** One-month non-deliverable rupee forward at 88.28; onshore one-month forward premium at 12 paise
** Dollar index down at 97.26
** Brent crude futures rise 0.2% to $67.6 per barrel
** Ten-year U.S. note yield at 4.04%
** As per NSDL data, foreign investors bought a net $115.8 mln worth of Indian shares on September 12
** NSDL data shows foreign investors bought a net $198.9 mln worth of Indian bonds on September 12
