The rupee is expected to open around 79.75 per US dollar in early trading, from 79.6725 in the prior session.
The dollar index hit 107.72 on Friday, the highest level since July 18, adding to the 0.8% advance from the previous session. The 2-year Treasury yield remained above 3.20%.
Traders valued comments from Fed officials which once again seemed to indicate that the US central bank was unlikely to make a dovish pivot. One Fed official backed a third straight rate hike of 75 basis points (bps) and another said a 50 or 75 bp hike would be reasonable at next month’s meeting.
Although the odds of a 75 basis point hike at the September meeting have eased somewhat following the July US inflation data, Fed funds futures have shown that there is still a 40% chance that the central bank will raise rates by 0.75 percentage points.
“The markets…believe that Fed dovish hope is still a long way off,” said Srinivas Puni, managing director of QuantArt Market Solutions.
The dollar index is now up nearly 3% from lows seen following the US inflation data. Treasury yields are also showing levels at or above those before the inflation data, as Fed officials largely disagree with forecasts that the pace of rate hikes will slow.
The offshore Chinese yuan fell 0.3% to 6.82 to the dollar on Friday, dragging Asian currencies lower. The Chinese currency came under pressure on concerns about the nation’s economic outlook.
“In addition, concerns about the situation in China have played on Asian currencies and disadvantaged the rupee,” said Mr. Puni.
The rebound in oil prices is likely to add to the Rupee’s woes in Friday’s session. Brent crude oil futures climbed 3% on Thursday.
KEY INDICATORS: ** The one-month non-deliverable forward contract on the Rupee is 79.96; one-month domestic futures premium is 21 paise ** USD/INR NSE August futures closed Thursday at 79.68 ** USD/INR 18 August futures premium for the end of current month is 4.5 paise ** Dollar index is up 107.61 ** Brent futures contract is down 0.2% $96.4 per barrel ** The yield US 10-year bond yield is 2.9%. US 10-year bond yield 2.9%, Indian 10-year bond yield 7.2421% ** SGX Nifty nearest-month futures are down down 0.2% to 17,970 **According to NSDL data, foreign investors bought $542.4 million worth of Indian stocks on August 16-17** NSDL data shows foreign investors bought 1. $7 million of Indian bonds on August 17.