Risk-off poised to drag Indian rupee near record low, challenging RBI’s defence

MUMBAI: The Indian rupee is expected to open near its lifetime low on Friday, pressured by risk aversion and firmer US yields, with traders watching whether the country’s central bank again defends the 88.80 level.

The 1-month non-deliverable forward indicated the rupee will open in the 88.78–88.82 range versus the US dollar, after settling at 88.6650 on Thursday, putting it at risk of slipping past the all-time low of 88.80.

The 88.80 handle is drawing heightened attention, with the Reserve Bank of India defending it for well over a month and stepping in with dollar sales each time the rupee nears that level. Bankers see it as an effective line the central bank is keen to hold.

Bankers point to likely RBI dollar sales between 88.60 and 88.75 this week, a pattern consistent with its recent approach of absorbing demand and capping intraday declines.

There’s a “ceiling of sorts” (on dollar/rupee), a currency trader at a private bank said.

“You can see the price action becomes heavy well before the figure (88.80).

The question is whether that will happen again today,“ said a spot trader at a private bank.

The rupee will have to absorb the sell-off in U.S. equities on Thursday, which spilled into Asian markets, and the jump in U.S. Treasury yields.

Fading expectations of a December Federal Reserve rate cut were among the factors analysts cited for the drop in U.S. shares and bonds.

Rate-cut odds for next month fell after hawkish comments from Fed officials, with St. Louis Fed President Alberto Musalem saying there was limited room to cut without becoming overly accommodative.

Cleveland Fed President Beth Hammack said policy needed to stay restrictive to keep pressure on inflation.

A still messy U.S. data calendar added to the angst, hitting bonds and the dollar.