The Indian rupee is set to open flat on Tuesday, with traders expecting it to remain rangebound ahead of the U.S. Federal Reserve’s policy decision later this week.
The 1-month non-deliverable forward indicates that the rupee will start trading around 83.87-83.88 per U.S. dollar, similar to Monday’s close of 83.8875.
While most Asian currencies have gained strength due to growing expectations of a deeper rate cut by the Fed, the rupee hasn’t followed suit. According to traders, it’s facing downward pressure from steady dollar demand by local importers and the Reserve Bank of India’s likely involvement in absorbing dollar inflows.
State-run banks have been actively buying dollars around the 83.85 level, a trader at a foreign bank noted. This is possibly tied to client transactions, but the continuous rise in India’s foreign exchange reserves suggests that the RBI has also been absorbing dollars.
India’s forex reserves hit a record high of $689.2 billion as of September 6, according to central bank data.
Meanwhile, the U.S. dollar index is sitting at 100.6 after a 0.4% drop on Monday. The odds of a 50-basis point rate cut by the Federal Reserve have increased to 67%, up from 50% just last Friday, according to CME’s FedWatch tool.
U.S. bond yields have also dipped, while several Asian currencies, led by the South Korean won with a 0.8% rise, have gained.
In a note, MUFG Bank mentioned that upcoming U.S. retail sales data, due later today, could play a crucial role in shaping the Fed’s decision, potentially settling the debate between a 25 or 50 basis point rate cut.
