Indian rupee likely to open higher as Fed outlook pushes back dollar

MUMBAI: The Indian rupee is expected to open stronger on Thursday, tracking gains in Asian peers after an anticipated U.S. Federal Reserve rate cut and a less-hawkish-than-feared outlook triggered a broad retreat in the dollar.

The 1-month non-deliverable forward indicated the rupee will open near 89.85 range versus the dollar, after having settled at 89.9650 in the previous session.

A sharply divided U.S. Fed cut interest rates on Wednesday, with Chair Jerome Powell saying in a post-decision press briefing that another rate hike is unlikely.

The less-hawkish-than-expected tilt in Powell’s remarks pushed the dollar and U.S. Treasury yields lower, while sparking a Wall Street rally that carried over to Asian stocks.

The dollar index was hovering near a two-month low of 98.58 after declining 0.6% on Wednesday, while equity futures pointed to a positive kick-off for Indian stocks as well.

Traders reckon that the broadly softer dollar could offer transient relief to the rupee, which had declined to its all-time low of 90.42 last week, but has since been consolidating above that level.

The medium-term outlook for the currency though continues to be strained by the paucity of dollar flows as foreign investors continue to pull out of local stocks and a missing trade deal with U.S. bogs down sentiment.

“We think the peak INR underperformance against the USD is behind us. Still, we expect the INR to be range-bound, if the U.S. trade-related uncertainty abates and capital flows recover, given we expect the RBI to replenish FX reserves amid higher dollar inflows,” analysts at Goldman Sachs said in a note.

The firm has revised its forecasts for the rupee lower to 91 over the next 6 and 12 months, down from 87.50 and 86.50, respectively.