MUMBAI, Sept 19 (Askume) – The Indian rupee’s recovery on Thursday will be mainly driven by a stronger U.S. dollar despite the Federal Reserve’s 50 basis point interest rate cut.
After the Fed cut interest rates, the 1-month USD/rupee non-deliverable forward (NDF) fell to 83.66. According to a Askume poll, economists had expected a smaller rate cut of 25 basis points. The one-month NDF is 83.66, which is equivalent to the spot price of 83.56-83.58.
However, the NDF’s losses were not sustained and the rupee was expected to open almost flat, slightly above Tuesday’s 83.75. India’s foreign exchange and currency markets remained closed on Wednesday.
A recovery in the US dollar and Treasury yields limited NDF losses. The decline in the dollar and bond yields following the Fed’s interest rate decision was reversed following Powell’s press conference.
Powell said at a press conference that he sees no sign of a slowdown or recession, which would boost the dollar and raise US interest rates.
Analysts believe that another reason for the dollar’s recovery is the Federal Reserve’s interest rate forecast. The midpoint chart shows a 2024 rate cut that is 50 basis points higher and 70 basis points lower than the swap price. Additionally, the average forecast for the long-term federal funds rate rose 0.125 basis points to 2.875%.
The market’s reaction to the policy decision and Powell’s press conference may indicate that the market “has gone well ahead in pricing in a rate cut,” MUFG Bank said in a note.
Asian currencies fell between 0.1% and 0.5%, while stocks rose.
The dollar/rupee pair has “excellent support” at current levels and should remain bullish due to weakness in Asia, a currency trader at a bank said.
key indicators:
** 1 month non-due prepayment is Rs 83.82; 1 month domestic prepayment premium is 10 paise
**USD index hits 101.20
** Brent crude futures fell 0.2% to $73.5 a barrel.
** Ten-year US Treasury yield is at 3.73%
** Foreign investors bought Indian shares worth $363 million on September 16, according to NSDL data.
** Foreign investors bought Indian bonds worth $10.3 million on September 16, NSDL data showed.
