MUMBAI: The Indian rupee will be looking to build on the previous session’s momentum on Tuesday in wake of the dollar’s decline and fall in US yields.

Non-deliverable forwards indicate the rupee will open at around 81.88-81.90 to the US dollar compared with 81.9050 on Monday. Dollar offers by foreign banks, likely related to their custodial clients, helped the rupee once again move past the 82 level.

Momentum was “definitely in favour” of the rupee, but USD/INR is near levels where it has been well supported in recent days, a spot trader said.

Whether the 81.75-81.80 support on USD/INR is taken out will be up to the Reserve Bank of India and on prevalence of more dollar inflows, he said.

The rupee at open will be helped by the overnight slide on the dollar.

The dollar index dropped to lowest in more than a week, impacted by the fall in US yields and the rally on the euro.

The 10-year US yield was down below 3.50% and the 2-year to near 4.10%.

Meanwhile, the euro rose above $1.10 overnight and was near 1.1050 in Asia on European Central Bank rate hike bets.

European Central Bank (ECB) board member Isabel Schnabel told Politico that a 50 bps rate hike was not off the table and would depend on data - notably inflation figures due two days before May’s meeting.

Currently, futures pricing implies about a 2/3 chance of a 25 bp rate hike and a 1/3 change of a larger 50 bp rise.

Indian rupee likely to hold firm after weakening below key near-term level

Asian currencies were mixed on the day while shares were mostly lower.

With Fed in the quiet period before next week’s meeting, focus today will be on the US new home sales, house prices and the Conference Board consumer confidence survey, ING Bank said in a note.