The Indian rupee is expected to open higher on Friday, helped by the US dollar which reversed much of the rally that was spurred by Donald Trump’s victory in the US election and falling US Treasury yields.
The one-month non-deliverable futures contract indicates that the rupee will open slightly higher than its close of 84.3725 per US dollar in the previous session, when the currency also hit its lifetime low of 84.3775 .
The dollar index fell 0.7% on Thursday, reversing nearly half of the rally sparked by Trump’s victory. The same was true for fixed income, with US rates falling after the election day surge.
“It’s more likely than not that this is just profit-taking (on long dollar positions), and I wouldn’t see much in it,” said a bank foreign exchange trader. .
“Overall, I think the dollar will remain in an upward trend at least until December, and the rupee will probably reach 85.
The fall in the rupee over the last two sessions is significant as the Reserve Bank of India had maintained a stranglehold on the currency earlier.
The fact that the central bank has allowed the rupee to weaken convincingly beyond 84 indicates that it is likely willing to allow larger bilateral moves, traders say.
Foreign equity outflows have been a major flashpoint and partly explain why the rupee is near historic lows. Foreign investors have withdrawn more than $1.5 billion from Indian stocks this month, after withdrawing almost $11 billion in October.
FED RATE CUT
The Federal Reserve cut rates by 25 basis points on Thursday, as expected, and Chairman Jerome Powell indicated he would take a cautious and patient approach to future cuts.
The Fed is likely concerned about the inflation implications that Trump’s policies are likely to fuel when it comes to deciding on rate cuts, ING bank said in a note.
KEY INDICATORS:
** One-month rupee undeliverable at 84.42; one-month onshore forward premium at 9.5 paisa.
** Dollar index at 104.50
** Brent down 0.4% to $75.3 per barrel
** Ten-year US bond yield at 4.34%.
** According to NSDL data, foreign investors sold $440.9 million worth of Indian stocks on November 6.
** According to NSDL data, foreign investors sold $38.6 million worth of Indian bonds on November 6.
