Indian rupee expected to remain anchored near 88.80, RBI’s hand counters dollar strength

MUMBAI: The Indian rupee is expected to remain anchored near its all-time low of 88.80 on Tuesday, with the Reserve Bank of India’s steady hand offsetting broad dollar strength.

The 1-month non-deliverable forward indicated the rupee will open in the 88.75-88.78 range versus the U.S. dollar, after settling at 88.7775 on Monday.

The central bank is once again back defending the 88.80 level, much like it did through late September and mid-October.

On Monday, the rupee traded in a narrow four-paisa range, with state-run banks seen selling dollars on behalf of the RBI near that mark, per bankers.

The brief relief rally that followed the central bank’s heavy intervention after its staunch defence of 88.80 has since unravelled.

“It’s back to 88.80, dollar demand is outpacing supply, and with the dollar index pushing further higher, the RBI will need to keep stepping in,” a currency trader at a private sector bank said.

Right now, sentiment is “anchored around the idea” that the RBI will not allow a move past 88.80“ he said.

“Any sign that it is slipping could trigger a quick repricing.”

Dollar on the march

The dollar index inched up in Asian trading to the psychological level of 100, heading for its fifth straight daily advance.

The dollar is finding buyers amid uncertainty over whether the Federal Reserve will cut rates at its next meeting in December.

Before the relatively hawkish comments from Fed Chair Jerome Powell at the post-policy press conference, investors were almost certain that a third consecutive rate cut was on the cards.

That has changed. Traders are now pricing in about a 65% chance of a December cut, down from 94% a week before, according to the CME’s FedWatch tool.

A divided Fed has spurred traders to rein in interest rate cut wagers.