By Anushka Trivedi
MUMBAI (Reuters) – The Indian rupee was expected to rise against the U.S. dollar on Thursday, after the U.S. Federal Reserve hiked rates by 25 basis points and signalled it was closer to the end of its tightening cycle amid turmoil in the financial markets.
The non-deliverable forwards indicate the rupee will open at around 82.45-82.50 to the dollar compared to 82.6550 on Tuesday.
Even though the Fed statement was perceived as slightly dovish compared to its stance earlier this month, it’s unlikely the rupee will sustain its gains as we’re expecting large dollar bids, said a state-run bank trader.
Traders may be anticipating a dollar liquidity crunch in the domestic markets, and hence the rupee is expected to fall towards 82.65-levels, he added.
Asian currencies broadly gained against a softer dollar index, that fell after the Fed’s rate hike that was accompanied by a change in language to “some additional” increases may be needed rather than “ongoing increases”.
Fed funds futures traders imply a nearly even chance of just one more 25 bps rate hike at the May meeting.
However, gains in risk assets were capped by Fed Chair Jerome Powell reiterating the need to fight inflation and that the banking industry stress could trigger a credit crunch with “significant” implications for the U.S. economy.
U.S. stocks had risen sharply after the decision, but reversed direction when Treasury Secretary Janet Yellen set off jitters over stability by telling Congress she hasn’t considered blanket insurance for deposits as a way to stem turmoil caused by two major bank failures this month.
“Much of the damage seems to have come from Treasury Secretary Yellen’s parallel remarks… right when Jerome Powell was insisting that the banking sector was sound,” ING analysts said in a note.
KEY INDICATORS:
** One-month non-deliverable rupee forward at 82.62; onshore one-month forward premium at 19.50 paisa
** USD/INR NSE March futures settled on Tuesday at 82.6750
** USD/INR forward premium as of March 21 for end current month is 2.25 paisa
** Dollar index down at 102.2
** Brent crude futures down 0.9% at $76 per barrel
** Ten-year U.S. note yield at 3.47%
** SGX Nifty nearest-month futures down 0.2% at 17,126
** As per NSDL data, foreign investors sold a net $231 mln worth of Indian shares on March 21
** NSDL data shows foreign investors bought a net $26.6 mln worth of Indian bonds on March 21
(Reporting by Anushka Trivedi; Editing by Varun H K)
