MUMBAI: The Indian rupee is expected to hold near its all-time low on Monday after a blowout US jobs report prompted investors to almost fully price out the likelihood of the Federal Reserve opting for one more large rate cut at their next meeting.
The 1-month non-deliverable forward indicated that the rupee will open at 83.97-83.98 to the US dollar compared with 83.9725 in the previous session and just shy of the lifetime low of 83.9850 hit on Sept. 5.
A “similar script” will play out, a currency trader at a bank said, referring to how rupee has behaved recently.
The dollar/rupee pair “should have opened way higher, and the reason it will not is just one (India’s central bank)”, he said.
The Reserve Bank of India has been resolutely defending the 84 level for the last two months.
On Friday, the central bank intervened in the non-deliverable forward and the onshore over the counter markets - similar to what it has done on several occasions - to prevent the rupee from slipping past 84.
Dollar marches higher
The dollar index rose on Friday and US Treasury yields jumped following a September US jobs report that showed the biggest jump in jobs in six months, a drop in the unemployment rate and a rise in wages.
Indian rupee logs worst week since May
The US labour market “has stayed resilient”, MUFG Bank said in a note.
The jobs report came amid uncertainty on whether the Fed will cut rates by 25 basis points or 50 at the November meeting.
On back of the robust jobs report, the odds that the Fed will cut rates by 50 bps are now down to just 6% compared to nearly 50% a week earlier.
Concerns over the Middle East conflict were an additional help to the safe-haven dollar.
Brent crude jumped 8.4% last week.
“With Middle East tensions not showing signs of abating, a spike in oil prices would worsen the terms of trade of many Asian economies, putting renewed downward pressure on Asian currencies,” MUFG said.
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