The Indian rupee is expected to remain near its historic lows on Thursday, in a context where the dollar remains well supported by expectations of a rate cut by the Federal Reserve at a measured pace next year.
US long-term yields are at their highest level in several months, further strengthening the greenback.
The one-month non-deliverable futures contract indicates the rupee will range between 85.20 and 85.21 per dollar, barely higher than on Tuesday, when it fell to a lifetime low of 85.2075 .
Since the rupee crossed the 84 mark in mid-October, the road has been a one-way street.
Slowing growth in India, tepid capital flows, the Fed's optimistic outlook and concerns over US President-elect Donald Trump's trade policies have led to a near-continuous decline in the currency.
The rupee has repeatedly fallen to historic lows and market participants believe the losses would have been much greater without the Reserve Bank of India's regular interventions.
“The USD/INR is firmly on the upward path, although the extent of the movement could still be limited by the RBI's intervention,” said Srinivas Puni, managing director of QuantArt Market Solutions.
“USD/INR should have easily reached 86.50-87+, given the magnitude of the dollar’s movement.
The dollar has rallied against its major peers and Asian currencies, helped by rising U.S. Treasury yields since Trump's election victory in early November.
His plans for deregulation, tax cuts and tariffs on trading partners are expected to boost not only growth but also inflation, prompting investors to demand higher yields on Treasuries.
Faced with uncertainty over the inflation outlook, Fed policymakers indicated earlier this month that they would make fewer rate cuts in 2025 than they had anticipated.
Fed Chairman Jerome Powell acknowledged that central bank staff and policymakers are beginning to think, at least preliminary, about how Trump's policy plans will affect inflation.
KEY INDICATORS:
** One-month non-deliverable rupee futures contract at 85.42; one month onshore forward premium at 20.25 paisa.
** Dollar Index up to 108.14
** Brent up 0.1% to $73.7 per barrel
** Ten-year US bond yield at 4.6%.
** According to NSDL data, foreign investors bought $18.3 million worth of Indian stocks on December 23.
** According to NSDL data, foreign investors sold $21.6 million worth of Indian bonds on December 23.
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