Mumbai (Reuters) – The Indian rupee is expected to struggle on Thursday as traders brace for the fallout of a short-lived relief from US Treasury yields and oil prices.
Non-deliverable forwards indicate rupee will open around Wednesday’s level of 83.18, within a whisker of the 83.29 record low. Brent crude rose more than 2% on Wednesday to near $90 a barrel.
“There are a host of negative factors (for the rupee to contend with – equity and U.S. bonds selloff, higher oil and dollar,” a forex trader at a bank said.
“You would expect (USD/INR) to be bid through the day. The RBI (Reserve Bank of India) will obviously be in play again.”
India’s central bank has consistently intervened to arrest rupee’s decline to a record low. The RBI’s intervention has extended to NDF and futures alongside spot, according to traders.
The selloff in U.S. Treasuries resumed with the 10-year yield back to just below the 5% handle, after robust U.S. home sales data. The 2-year yield inched up to 5.12%.
The housing sales data reflected the U.S. economy’s resilience, ANZ said in a note.
Taking support of the yields and the data, the dollar index climbed to 106.73, the highest in nearly two weeks. U.S. equities plunged with the S&P 500 Index falling to the lowest since May.
“Investor sentiment remained unsettled before the run of central bank meetings gets underway, starting with the ECB (European Central Bank).”
The ECB later in the day is expected to hold the policy rate at 4% amid slowing inflation and worries on the growth outlook. The Federal Reserve policy decision follows next Wednesday.
Asian currencies were down 0.2% to 0.5% while South Korean and Japanese equities dropped about 2%. U.S. equity futures extended losses.
KEY INDICATORS:
** One-month non-deliverable rupee forward at 83.25; onshore one-month forward premium at 7.25 paise
** Dollar index up at 106.73
** Brent crude futures at $90 per barrel
** Ten-year U.S. note yield at 4.96%
** As per NSDL data, foreign investors bought a net $49.3mln worth of Indian shares on Oct. 23
** NSDL data shows foreign investors sold a net $15.6mln worth of Indian bonds on Oct. 23
