MUMBAI, March 23 (Reuters) – The Indian rupee was expected to rise against the US dollar on Thursday after the US Federal Reserve hiked interest rates by 25 basis points and signaled it would relax amid financial turmoil Markets are nearing the end of their tightening cycle.
The non-deliverable forwards suggest the rupee will open around 82.45-82.50 against the dollar compared to 82.6550 on Tuesday.
Although the Fed’s statement was perceived as slightly dovish compared to its stance earlier this month, the rupee is unlikely to continue its gains as we anticipate large dollar offers, a state-owned bank trader said.
Traders may anticipate a dollar liquidity crunch in domestic markets and hence the rupee is expected to fall towards 82.65, he added.
Asian currencies broadly appreciated against a weaker dollar index, which fell following the Fed’s rate hike, which may be accompanied by a language switch to “some additional” hikes rather than “ongoing hikes”.
Fed funds futures traders are implying a near-equal chance of another 25 basis point rate hike at the May meeting.
However, gains in risky assets were capped by Fed Chair Jerome Powell, who reiterated the need to fight inflation and that tensions in the banking sector could trigger a credit crunch with “significant” implications for the US economy.
US stocks had risen sharply after the decision but reversed course as Treasury Secretary Janet Yellen sparked jitters about stability by telling Congress she had not considered blanket insurance on deposits to help protect against the effects of two major bank failures contain the turbulence caused this month.
“Much of the damage appears to have been caused by Treasury Secretary Yellen’s parallel statements…just as Jerome Powell was insisting the banking sector was healthy,” ING analysts said in a note.
KEY INDICATORS:
** One-month non-deliverable rupee futures at 82.62; Onshore forward premium for one month at 19.50 paisa
** USD/INR NSE March futures settled at 82.6750 on Tuesday
** The USD/INR forward premium as of March 21 for the current month end is 2.25 Paisa
** Dollar Index down at 102.2
** Brent crude futures fell 0.9% to $76 a barrel
** Yield on US 10-year notes at 3.47%
** SGX Nifty futures for the next month fell 0.2% to 17,126
** Foreign investors sold Indian stocks net worth $231 million as of March 21, according to NSDL data
** NSDL data shows that foreign investors bought Indian bonds worth $26.6 million net as of March 21
Reporting by Anushka Trivedi; Editing by Varun HK
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