Hawkish Fed adds to Indian rupee troubles, traders watch 96/USD hurdle
- The Indian rupee is expected to open slightly weaker around 96-96.05 per dollar, down from its previous close of 95.9550
The Indian rupee is expected to weaken past 96 per dollar after the US Federal Reserve raised interest rates and signaled further tightening, adding pressure amid global inflation concerns.
- US Federal Reserve's interest rate hike and future outlook.
- Global impact of rising borrowing costs on Asian currencies.
- Factors influencing the Indian rupee's stability and pressure points.
MUMBAI: The Indian rupee is expected to be under pressure on Thursday and could weaken past the 96-per-dollar handle after the US Federal Reserve raised interest rates and signalled that further tightening is in the pipeline.
The Indian rupee is expected to open slightly weaker around 96-96.05 per dollar, down from its previous close of 95.9550.
The Fed raised interest rates by 25 basis points on Wednesday, its first increase since 2023, with officials expecting one more increase this year. The hike pushed the dollar index above the 100 mark to its highest level in more than a month.
Asian currencies slipped on Thursday, while equities traded mixed as investors digested the prospect of higher global borrowing costs. The Fed’s hike follows a rate increase in Europe last week and precedes an anticipated rise in Japan on Friday, as central banks globally grapple with rising inflation.
“There are no immediate signs for inflation to ease, especially given the stalemate in the Middle East. This means the Fed may need to continue to tighten in order to achieve its target,” Tai Hui, APAC chief market strategist at J.P. Morgan Asset Management, said in a note.
Futures imply about a 50% chance of another Fed hike next month to rein in inflation. A total of three rate increases have been priced in for this tightening cycle.
The rate outlook is expected to add to pressure on the rupee, already weighed down by elevated oil prices and foreign portfolio outflows from Indian stocks and bonds.
Traders said that inflows linked to the IPO of India’s largest stock exchange, along with interventions by the Reserve Bank of India, could help cushion the rupee. However, sentiment may worsen if the currency weakens past 96 and remains there, they added.
The National Stock Exchange of India (NSE) will open for subscriptions on Thursday after allocating shares worth $703 million to anchor investors on Wednesday.
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