MUMBAI, March 7 (Reuters) – The Indian rupee will aim to move past a key resistance in the wake of the decline in the dollar and U.S. Treasury yields following Federal Reserve Chair Jerome Powell’s comments.
Non-deliverable forwards indicate rupee will open flat to slightly higher to the U.S. dollar from 82.8225 in the previous session.
Following the “not expected” down move on the dollar/rupee late on Wednesday, the question now is whether the pair will drop below 82.80 and the year-to-date low of 82.77, an fx trader at a bank said.
“The momentum is there for the push lower. What remains to be seen is whether the RBI will allow it.”
The Reserve Bank of India has been mopping up dollar inflows, stifling any possible rally on the rupee, according to traders. Over the course of the last two weeks, the central bank has intervened on several occasions.
The dollar index and the 10-year U.S. Treasury yield dropped to a more-than-1-month low on Wednesday. Powell said that while continued progress on inflation “is not assured,” the Fed still expects to reduce its benchmark interest rate later this year.
He reiterated that Fed members “believe that our policy rate is likely at its peak for this tightening cycle”.
“Powell’s testimony.. suggests an inclination to cut interest rates to a more neutral level, but with inflation still above target and the activity data beating expectations, the central bank isn’t in a position to do so,” ING Bank said in a note.
With more evidence of a cooling jobs market, ING thinks the Fed can cut rates from June.
Investors have nearly fully priced out rate cuts at the March and May meeting. The odds of a rate cut in June is near 60%.
KEY INDICATORS:
** One-month non-deliverable rupee forward at 82.88;
** Dollar index down at 103.31
** Brent crude futures flat at $83 per barrel
** Ten-year U.S. note yield at 4.12%
** As per NSDL data, foreign investors sold a net $26.7mln worth of Indian shares on Mar. 5
** NSDL data shows foreign investors bought a net $96.2mln worth of Indian bonds on Mar. 5
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Reporting by Nimesh Vora; Editing by Janane Venkatraman
Our Standards: The Thomson Reuters Trust Principles.
