The Indian Rupee Faces Pressure as Fed Rate Cut Bets Firm Up
By Nimesh Vora
As the mostly dovish U.S. Federal Reserve minutes failed to lift Asian peers, the Indian rupee is expected to open little changed on Thursday. The 1-month non-deliverable forward suggests a minimal shift from the previous session’s rate of 83.9225.
Despite a brief relief, the rupee is now nearing its lifetime low of 83.9725, following a decline to 83.7550 on Tuesday. Importers hedging and weak portfolio flows have renewed pressure on the local currency, leading to a 0.16% drop on Wednesday.
The near-term outlook for the rupee remains uncertain, with the Reserve Bank of India intervening to prevent further depreciation past 84.
Investors anticipate a rate cut at the Fed’s September meeting, with a total of 100 basis points reduction expected over the remaining three meetings this year. The dovish tone of the minutes has reinforced these expectations, despite some policymakers advocating for a cut in July.
While Asian currencies paused following a recent rally, key indicators such as the one-month non-deliverable rupee forward at 84 and the onshore one-month forward premium at 8 paise reflect ongoing market fluctuations. The Dollar index is up at 101.24, with oil futures down at $75.9 per barrel.
Foreign investors have shown interest in Indian assets, with net purchases of $481.6 million worth of shares and $107.7 million worth of bonds on August 21, as per NSDL data.
Analysis:
The Indian rupee is facing challenges due to global economic factors, particularly the uncertain outlook on Fed rate cuts. Investors need to monitor these developments closely to make informed decisions regarding their investments in Indian assets. The intervention by the Reserve Bank of India indicates a proactive approach to stabilize the currency amidst external pressures. The expected rate cuts by the Fed could have implications on the rupee’s value, influencing trade and investment opportunities in the Indian market. Overall, staying informed and adapting to changing market conditions is crucial for individuals and businesses involved in the Indian financial landscape.