The Indian rupee is expected to open at its lowest level on Tuesday, weighed down by the rise in the dollar index and the tumble of the Chinese yuan in the wake of Donald Trump's victory in the US presidential election.
The one-month non-deliverable futures contract indicates that the rupee will open at 84.40-84.42 to the US dollar, surpassing the all-time low of 84.3925 hit on Monday.
The rupee hit historic lows after Trump's victory in the US elections.
The rupee would likely have fallen much further, probably near the 85 level, if not for the Reserve Bank of India's regular intervention, according to several traders.
The RBI “has been aggressive on the bid (on the dollar/rupee)” and that “in a way keeps the peace”, said a bank trader.
The current feeling is that the RBI wants the rupee to weaken due to the general movement of the dollar, but at a rate that is not “alarming”, he said.
THE DOLLAR IS WEAKENING
Expectations that Mr. Trump will implement economic and trade policies that will boost the U.S. economy have driven up the dollar and U.S. Treasury yields. The dollar index is at its highest level in more than four months.
The offshore yuan, which is likely to be hardest hit by Mr. Trump's trade policies, rose to 7.24 to the dollar and has lost nearly 2% since Mr. Trump's victory.
The rupee lost only 0.35% during this period.
THE LIKELIHOOD OF A FEDERAL RATE CUT IS DECREASING
The chances that the Federal Reserve will cut interest rates at next month's meeting have diminished due to prospects that Trump's policies are likely to cloud the inflation outlook. The chance of a rate cut in December has fallen from almost 80% to 2 in 3.
KEY INDICATORS:** One-month rupee undeliverable at 84.50; One month onshore forward premium at 8.5 paise.
** Dollar index up to 105.62
** Brent down 0.3% to $71.6 per barrel ** US ten-year bond yield at 4.32%.
** According to NSDL data, foreign investors sold $421.1 million worth of Indian stocks on November 8.
** According to NSDL data, foreign investors sold $21.1 million worth of Indian bonds on November 8.
