INDIA RUPE The rupee, which has risen sharply on bets, could see the Fed take back on rate hike

MUMBAI, Oct 27 (Reuters) – The Indian rupee is expected to open higher against the dollar on Thursday after the US currency plummeted on speculation that the Federal Reserve may slow the pace of its rate hikes.

The rupee has been around 82.10-82.20 per dollar for the first few trades compared to Tuesday’s close of 82.7250. The markets were closed on Wednesday for a local holiday.

The dollar index was around 109.75, hovering near its lowest level in over a month. The dollar gauge was near 112 by the time over-the-counter rupee (OTC) markets closed on Tuesday.

The “big correction in the dollar” will help the rupee “get off to a really good start today,” said a trader at a Mumbai-based bank.

“You would expect 82 to be major support (for the USD/INR pair) and there will be decent buying interest there in dollars.”

The dollar’s slide was fueled by bets that the ailing US economy could prompt the Fed to reassess the extent of its rate hikes beginning next month.

The view that the Fed could start to turn around in December was bolstered this week by weak US housing data, which showed home prices and sales slipped, contributing to suspicions that the Fed’s attempts to rein in the world’s leading economy to brake worked.

Government bond yields fell, with the 10-year yield now at 4.02%, about 30 basis points below their recent highs. The probability of a 75 basis point Fed rate hike in December has fallen to almost 1 in 3 from around 75% a week ago.

The Bank of Canada’s (BoC) policy decision also reinforced expectations of a less hawkish Fed.

The BoC on Wednesday announced a less-than-expected 50 basis point hike in interest rates, saying future hikes would be influenced by its assessment of how tighter policies would help slow demand and lower inflation.

KEY INDICATORS:

** Undeliverable rupees for one month at 82.6; One-month onshore forward premium of 20.5 Paise

** USD/INR NSE Oct futures settled at 82.8750 on Tuesday

** Dollar index at 109.74

** Brent crude futures were up 0.3% to $96 a barrel

** Yield on US 10-year notes at 4.02%

** SGX Nifty next month futures up 0.5% to 17,900

** Foreign investors bought Indian shares worth $69.6 million net as of Oct. 21, according to NSDL data

** NSDL data shows that foreign investors sold a net $4.1 million worth of Indian bonds as of Oct. 21

Reporting by Anushka Trivedi in Mumbai; Edited by Rashmi Aich

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