MUMBAI: The Indian rupee is expected to open marginally higher on Wednesday after dovish comments from Federal Reserve officials prompted a further fall in US Treasury yields and the dollar.
Non-deliverable forwards indicate the rupee will open at around 83.28-83.30 to the US dollar, compared with 83.3325 in the previous session.
The domestic currency has “a small bit of momentum from yesterday” and “we will have to see whether it can take advantage of it”, a forex trader at a bank said.
The rupee “has a whole bunch of positive cues to count on”, but “let’s see if it actually moves”, he added.
The dollar index dropped below 102.50 for the first time since around the middle of August, taking its losses this month to nearly 4%.
The 10-year US Treasury yield dropped below 4.30%, the lowest in two months.
Indian rupee likely to sidestep rally in Asia FX fuelled by US yields
Comments by Fed officials reinforced expectations that the US central bank will cut rates next year, pushing yields and the dollar lower.
Fed Governor Christopher Waller, a hawkish and influential policymaker, said there are good economic arguments to lower the policy rate if inflation continues to fall for several more months.
Further, remarks from a speech by Fed Governor Bowman contained “an important shift”, conveying rate hikes are no longer her baseline, according to Morgan Stanley.
“A notable shift from two FOMC (Federal Open Market Committee) participants widely regarded on the hawkish end of the spectrum not only seemingly shut the door on further rate hikes but broached conditions and timing of rate cuts,” Morgan Stanley said in a note.
The two-year US Treasury yield, a reflector of interest rate expectations, was down to 4.70%, the lowest since July.
Fed futures are now pricing in slightly more than 100 basis points of rate cuts in 2024, beginning most likely from May.
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