Weakness across Asian FX before Fed decision to put mild pressure on Indian rupee

MUMBAI: The Indian rupee may open marginally weaker on Wednesday, tracking losses across most Asian peers, with investors awaiting the Federal Reserve’s policy decision after local market hours for clues on the outlook for further rate hikes.

The Indian rupee is expected to open in the 95.12-95.16 range, per traders, having settled 0.1% higher at 95.1150 to the dollar on Tuesday.

The rupee managed to recover in Tuesday’s session after slipping to 95.24 intraday amid dollar sales by state-run banks which two traders said may be on behalf of the Reserve Bank of India.

Traders see 95.30 as a key near-term support level for the Indian currency.

The rupee’s resilience despite surging oil prices points to the increased role of the RBI’s intervention in containing pressure on the currency, with the exchange rate largely range-bound around the 95-per-dollar mark, a currency trader at a private-sector bank said.

Brent crude rose 1.6% to $115.74 per barrel in Asia trading, after an attack on a refinery in Saudi Arabia, the world’s biggest crude exporter, revived concerns around the risks to supply in the Middle East.

India has partly cushioned the rupee from the impact of elevated oil prices through a special RBI window for refiners to purchase dollars directly.

However, persistently high oil prices are clouding the rupee’s outlook and weighing on capital flows.  

FED pause

Markets and economists widely expect the Federal Reserve to leave rates unchanged on Wednesday.

However, with inflation concerns still front and centre, investors see any pause as likely to be short-lived, with further rate hikes remaining on the table.

Ongoing concerns about price pressures mean “we do expect a December interest rate rise”, analysts at ING Bank said in a note.

The Fed decision to keep rates unchanged may not be unanimous, they added, with the potential for three dissenters to call for a hike.  ‑Reuters