Rupee Set to Advance on Dollar Selling
The Indian rupee is anticipated to strengthen at the opening on Wednesday, buoyed by dollar selling observed in offshore non-deliverable forwards.
Numeric Detail: Non-deliverable forwards suggest that the rupee (USDINR) will open at 82.88-82.90 against the U.S. dollar, compared with the previous session’s rate of 82.9625.
Price Action and Market Analysis: The one-month USD/INR NDF reached a low of 82.92 in the New York session, implying a spot rate of 82.84. The dollar index (DXY) dipped close to 103.80.
Follow-through Expectations: Analysts anticipate a continuation of yesterday’s price action for USD/INR amid reasonable dollar selling, with a focus on whether the support level of 82.80 is at risk.
Rupee’s Performance and Market Context: Despite challenges faced by Asian peers, the rupee had its best day in two weeks on Tuesday. The dollar index’s decline below 104 coincided with a slight decrease in U.S. Treasury yields, tracking trends in the UK and Canada.
Focus on Fed Minutes and Rate Cut Expectations: Investors are awaiting the release of the Federal Reserve’s January meeting minutes, particularly to gauge the central bank’s stance on inflation and potential policy changes. Expectations for rate cuts have diminished following upbeat U.S. job reports and higher-than-expected inflation figures.
Key Indicators and Financial Metrics:
- One-month non-deliverable rupee forward at 82.98; onshore one-month forward premium at 8 paisa
- Dollar index (DXY) at 103.98
- Brent crude futures at $82.54
- Ten-year U.S. note yield at 4.2750%
- Foreign investors net bought $21 million of Indian shares on Feb. 19, according to NSDL data
- NSDL data also indicates that foreign investors net bought $23 million of Indian debt on Feb. 16.
Key Takeaways:
- The rupee is expected to strengthen against the dollar due to offshore dollar selling.
- Market attention is on the Federal Reserve’s meeting minutes for insights into inflation and potential policy adjustments.
- Expectations for U.S. rate cuts have decreased, impacting investor sentiment and currency movements.