MUMBAI: The Indian rupee’s recovery on Thursday will have to contend with a broadly higher US dollar despite the Federal Reserve delivering a 50-basis-point rate cut.
The 1-month dollar/rupee non-deliverable forward (NDF) declined to 83.66 following the Fed rate cut. Economists had expected a smaller 25-bp rate cut, per a Reuters poll.
The 1-month NDF of 83.66 is equivalent to 83.56-83.58 on spot.
The dip in the NDF, however, did not sustain and the rupee is expected to open largely unchanged to marginally higher from 83.75 on Tuesday.
Indian forex and money markets were shut on Wednesday. A turnaround in the US dollar and Treasury yields stalled the decline in the NDF.
Indian rupee ends moderately higher
The drop in the dollar and bond yields following the Fed’s rate decision reversed during Powell’s presser.
During his press conference, Powell said he does not see any indication of a recession or an economic downturn, providing a boost to the dollar and lifting US yields.
Another reason cited by analysts for the dollar’s recovery was the Fed’s interest rate projections.
The median dot plot showed 50 bps more cuts in 2024, less than the 70 bps swaps have priced in. Moreover, the median estimate of the longer-run Fed funds rate increased by 0.125 bps to 2.875%.
The market reaction to the policy decision and the Powell’s presser perhaps indicates that the market has “already gone quite far in pricing for rate cuts”, MUFG Bank said in a note.
Asian currencies were down 0.1% to 0.5% while equities advanced.
The dollar/rupee pair has “excellent support” at near its current level and should be boosted by the weakness in Asia, a currency trader at a bank said.
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