Rupee traders eye RBI, flows before fully priced in Fed rate cut
The Indian rupee is expected to hold in a narrow range on Wednesday, with likely central bank support countering importer dollar demand and a softer Asia backdrop, ahead of a near-certain U.S. Federal Reserve rate cut.
The 1-month non-deliverable forward indicated the rupee will open in the 88.24-88.28 range versus the U.S. dollar, having settled at 88.2650 on Tuesday.
The Reserve Bank of India likely sold dollars near the 88.40 level on Tuesday, helping the rupee recover. The currency has been under pressure amid NDF-related expiries, while importer demand has outweighed exporter flows in recent days.
Market participants further cited talk of a potential outflow adding to the rupee's weakness before the central bank stepped in.
The rupee, which had managed to rally to the 87.60–87.80 band and held there for about a week, has come under considerable strain over the past two sessions.
Bankers noted the RBI had been actively defending the 88 level through recent days, making Tuesday's breach of that mark unexpected and indicative of renewed pressure on the currency.
The bias on the rupee "is now for a measured drift weaker,” said a currency trader at a private bank.
"I do not think there will be anything in the Fed policy that will change that."
Interest rate futures imply total certainty of a 25-basis-point cut at the Fed’s decision later in the day.
With 25 bps cut fully priced in, focus will be on cues on future rate cuts. Investors will look out for any tweaks to quantitative tightening, with speculation that the Fed could halt the balance-sheet runoff.
Asia currencies were mostly weaker before the Fed decision.
KEY INDICATORS:
** One-month non-deliverable rupee forward at 88.35; onshore one-month forward premium at 13.25 paise
** Dollar index up at 98.77
** Brent crude futures down 0.2% at $64.3 per barrel
** Ten-year U.S. note yield at 3.98%** As per NSDL data, foreign investors bought a net $70 mln worth of Indian shares on Oct. 27
** NSDL data shows foreign investors sold a net $7.7 mln worth of Indian bonds on Oct. 27
