Indian rupee boxed in, RBI takes sting out of heavy dollar demand
- The Indian rupee is expected to open in the 95.34-95.38 range, according to traders, after settling at 95.33 per dollar on Wednesday
MUMBAI: The Indian rupee is expected to open largely flat to marginally weaker on Thursday and remain range-bound, with persistent dollar demand from hedgers pressuring the currency while the central bank continues to limit its downside.
The Indian rupee is expected to open in the 95.34-95.38 range, according to traders, after settling at 95.33 per dollar on Wednesday.
For much of Wednesday, the rupee was mired in a narrow 3-4 paise range, with constant dollar supply from state-run banks, likely on behalf of the Reserve Bank of India.
It staged a late mini-rally on further RBI dollar selling, before settling about 0.1% higher.
The currency has been in a range of less than 30 paise this week, while near-term realised volatility has collapsed.
The RBI’s “nearly all-day presence” is making the impact of cues from oil or the broader dollar smaller and smaller, “which is exactly what it may want,” a currency trader at a bank said.
“It is evident that they want to push it (dollar/rupee) lower. However, the problem is that with oil where it is, there is just this intense dollar demand at current levels,” the trader added.
Brent crude inched past $90 on Wednesday before slipping. It was quoted at $88 in Asia on lower demand forecasts amid the deadlock in US-Iran talks.
FED hike odds slip slightly
The rupee and its Asian peers will see relief from a slight decline in expectations for a Federal Reserve rate hike next month following July U.S. inflation data that was largely in line with forecasts.
Money markets price a 40% chance of a rate hike, down from 54% a week ago, according to CME Group’s FedWatch.
The inflation data should allow the Fed to remain “on hold for now”, MUFG Bank said in a note, adding that it was probably not enough to prompt investors to shift positions at this stage.
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