MUMBAI: The Indian rupee is expected to open lower versus the dollar on Tuesday after better-than-expected US data rekindled worries on how high the Federal Reserve will hike rates.
The rupee is projected to open at around 81.90 per US dollar, weaker than the 81.79 closing in the previous session.
The rupee has in the last two sessions declined despite a host of positive cues. The local unit on Monday fell by the most in over a month.
After Monday’s disappointment, the question now is whether rupee will be able to at least defend the 82 level, a spot trader at a foreign bank said.
A near-term range of 81-82 for the rupee has been broad consensus, and price action during the day will decide if that range will be revised, the trader added.
Treasury yields and the dollar index rose on Monday and US equities declined after data showed that US services industry activity unexpectedly picked up in November.
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The data indicated that parts of the US economy were holding up well to the Fed rate hikes and made it less unlikely that the central bank could pivot later next year.
Investors expect the Fed to dial back the size of rate hikes to 50 basis points at their next meeting and are pricing in rate cuts in the latter part of next year.
The Fed rate is expected to peak at near 5%.
The rise in Treasury yields and expectations that the Reserve Bank of India will deliver a smaller rate hike on Wednesday may push rupee forward premiums to new multi-year lows.
The 1-year USD/INR implied yield on Monday was at 1.80%, the lowest since 2011.
The RBI will raise interest rates by a smaller 35 basis points to 6.25% in December, according to economists polled by Reuters.
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