Indian rupee seen lower, Fed rate outlook weighs on Asian peers


The rupee is seen around 79.55 per dollar in early trading, down from 79.45 on Tuesday. Indian financial markets were closed on Wednesday.

On Tuesday, the rupee had its best session in a year, which traders attributed to the end of long dollar positions and renewed talk of including Indian bonds in global indices.

Tuesday’s “against the trend” rally in the rupee “was surprising to say the least,” said a Mumbai-based bank trader.

Nonetheless, the rupee remains in a firm downtrend, and “it’s very likely” that Tuesday’s session “was an aberration.”

The dollar index was near 109 and Asian currencies were down overall. Risk aversion and high Treasury yields have boosted demand for the safe haven dollar.

US equity futures extended losses after the S&P 500 index fell for the fourth straight day, while major Asian gauges were down as much as 2%.

The likelihood that the continued rapid pace of Fed rate hikes will drive an economic slowdown has weighed on demand for risky assets. Fed officials challenged expectations of a slower pace of rate hikes and that the US central bank will cut rates later in the year.

The possibility that the European Central Bank opts for a significant rate hike of 75 basis points this month only heightens risk sentiment. Eurozone headline inflation for August hit a new high, beating expectations.

Meanwhile, data released on Wednesday showed India’s economy grew 13.5% in the April-June quarter. And, although growth is at its fastest pace in a year, it is below the expectations of economists polled by Reuters.

The rupee at the open should receive support from the collapse in oil prices.

KEY INDICATORS:

** Rupee undeliverable one month 79.75; one-month onshore premium 20.5 paise ** Dollar index up 108.96 ** Brent futures down 0.1% to $95.5 a barrel ** US ten-year bond yield 3.2%, 10-year Indian bond yield 7.19% ** SGX Nifty 1-month futures contracts down 0.2% 17,472 ** According to NSDL data, overseas investors bought $257.7 million worth of Indian stocks on Aug. 29.

**According to NSDL data, foreign investors sold Indian bonds for a net worth of $85.4 million on August 29.



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