Indian rupee eyes higher opening on Fed rate cut bets, though staying power likely limited

MUMBAI: The Indian rupee is expected to open higher on Thursday, helped by a softer dollar on bets of a December Federal Reserve rate cut, though bankers cautioned that the currency has struggled to sustain any relief rallies.

The 1-month non-deliverable forward indicated the rupee will open in the 89.14-89.18 range versus the U.S. dollar. It had settled at 89.27 on Wednesday.

Through this week, the rupee has struggled to translate supportive Asian cues into lasting traction. On two occasions, first on Monday and then again on Tuesday, the currency slipped into the 89–89.10 zone, sparking optimism of a recovery.

However, bankers said there was no real follow-through, with importers and a small pocket of speculators buying the dollar/rupee pair on dips.

“It is noticeable that intraday dips do not evolve into anything more durable. In that kind of market, the natural instinct would be to try small, tactical long (dollar) positions,” a currency trader at a private sector bank said.

Positioning for long dollar bets with a stop below 88.80 looks like a decent risk-reward setup right now, he added.

Meanwhile, the IMF on Wednesday recast India’s de facto exchange-rate regime to a “crawl-like arrangement“ from the “stabilised” tag assigned two years back.

Dollar slides further

The dollar index dipped in Asia, putting it on track for a fifth straight day of decline. The gauge is down about 0.8% so far this week, pressured by mounting confidence that the Fed will deliver another 25-basis-point rate cut next month.

Rate cut odds have undergone a significant shift in the span of a week, from roughly one-in-three to almost 85% now. A run of dovish commentary from Fed officials, led by New York Fed President John Williams, has prompted investors to reprice the policy outlook, undermining the dollar.

Risk assets have rallied, further denting demand for the safe haven dollar, while U.S. yields have slipped in tandem.