MUMBAI: The Indian rupee is expected to open higher against the dollar on Wednesday after oil prices tumbled on concerns over the demand outlook.
The Reserve Bank of India’s (RBI) policy decision is due shortly after the open.
The rupee is likely to open at around 82.40-82.45 compared to 82.6150 in the previous session.
The local unit will be looking to arrest a three-day 1.7% decline that has taken it to its lowest level in a month.
Corporate dollar outflows and the culling of long rupee positions were cited as reasons for the rupee’s fall and the pickup in intraday volatility.
While falling oil prices will undeniably help, the positive opening is “more of a reflection” of markets wanting to assess how sustainable the rupee’s “unexpected” fall to well below 82 is, a trader at a Mumbai-based bank said.
The impact of the RBI policy decision is “pretty straightforward”, the trader said.
A 35-basis point (bps) hike is priced in and will not have an impact while a 25 bps increase will be very negative for the rupee in the current context.
According to a poll by Reuters, the RBI is expected to deliver a 35 bps rate hike with inflation holding above the central bank’s tolerance band.
Oil prices dropped overnight with Brent crude futures sliding below $80.
Concerns over how demand would shape up amid uncertainty over the world economic outlook prompted a near 4% decline in Brent crude futures.
Asian currencies were mostly a tad higher while the dollar index was hovering near 105.50. Asian shares incurred moderate losses while US equity futures were little changed.