Rupee to test RBI`s resolve as risk aversion, soft Asian peers pile pressure
The Indian rupee is expected to open flat to slightly weaker on Friday, weighed by the softer tone in regional peers and risk-off mood, while traders watch for signs of central bank intervention.
The 1-month non-deliverable forward indicated the rupee will open in the 88.60-88.66 range versus the U.S. dollar, having settled at 88.6125 on Thursday.
The Reserve Bank of India stepped in on Wednesday to spur a modest rupee rally, in what traders said was a milder version of the heavy intervention seen in mid-October. Bankers said the central bank was likely active again on Thursday to support the currency.
Market participants said the RBI’s presence and intent to defend the 88.80 level have anchored sentiment for now, though it underscores the currency’s reliance on central bank support amid an adverse flow backdrop.
"What the RBI is trying to project is that it remains firmly in control and right now, it very much is,” said a Mumbai-based currency trader at a private bank.
"The RBI is fighting both the flow and a dollar, which is on the up move."
On the flow side, foreign investors have pulled out nearly $1.8 billion from Indian equities over the past six sessions, at a time when importers are actively hedging near-term payables.
The dollar, meanwhile, is finding support from a slight tempering of expectations for a Federal Reserve rate cut in December.
The dollar index this week climbed past 100 for the first time in three months, before pulling back amid signs of weakness in private sector surveys.
RISK SOURS AGAIN
U.S. equities posted notable losses on Thursday, with the S&P 500 Index down more than 1%. South Korean shares led losses in Asia, while regional currencies posted modest declines. [MKTS/GLOB]
KEY INDICATORS:
** One-month non-deliverable rupee forward at 88.75; onshore one-month forward premium at 13.25 paise
** Dollar index at 99.74
** Brent crude futures up 0.6% at $63.7 per barrel
** Ten-year U.S. note yield at 4.10%
** As per NSDL data, foreign investors sold a net $36.8 mln worth of Indian shares on Nov. 5
** NSDL data shows foreign investors sold a net $77 mln worth of Indian bonds on Nov. 6
