Indian rupee poised to fall on worries over Fed rate path

MUMBAI: The Indian rupee is expected to decline versus the dollar at open following an overnight jump in US yields on bets of more rate hikes from the US Federal Reserve.

The non-deliverable forwards indicate the rupee will open at around 82.85 to the US dollar compared with 82.79 in the previous session.

The 10-year US yield and the 2-year yield overnight rose to the highest since November. Futures are now pricing in a peak rate of 5.35%, which is more than 40 basis points (bps) higher than before the January US jobs report released on Feb. 3.

Indian rupee drops, but stays within familiar narrow range

The US activity data released on Tuesday supported a further repricing higher of the peak rate. Business activity unexpectedly rebounded in February, reaching its highest level in eight months, according to a survey on Tuesday.

U.S rates continue to adjust higher with investors digesting the implications of firm economic data and the impact on the Fed’s policy, DBS Group Research said in a note.

The jump in 10-year US yields indicates the paring of bets that the Fed will cut rates this year and the drive higher in terminal rate estimates, it added.

US equities overnight suffered their worst session in more than two months. The dollar index inched higher.

The dollar index remains around the 104 level, a surprise in the wake of the selloff in US bonds and equities, a trader at a Mumbai-based bank said. That will be a bit of relief for the rupee; then there is the RBI to take into account, they added.

The Reserve Bank of India has likely been selling dollars, both onshore and offshore, to prevent the rupee from weakening below the 83-handle, according to several market participants.

Markets now await minutes of the Fed’s Jan. 31-Feb. 1 meeting due during US trading hours.