MUMBAI: The Indian rupee is tipped to open slightly higher versus the dollar on Monday, helped by an improved risk sentiment. The rupee’s advance is, however, likely to be capped by the higher Treasury yields.
The rupee is expected to open at 82.40-82.45, compared with 82.47 in the previous session.
It is likely to be a “holding session” for the rupee, with the currency balancing a “decent” revival in risk and renewed uptick in US yields and the dollar index, a trader at Mumbai-based bank said.
“Rupee should broadly be in a 82.20 to 82.60 range till we hear from the Fed.”
The US Federal Reserve begins its two-day meeting on Tuesday, when it is expected to opt for a fourth straight 75 basis points rate increase.
Fed futures have recently moved to price in a small chance, about 15%, of a 50 bps move on soft US economic data.
The base case scenario for markets is that the Fed will raise rates by 75 bps this week, but will lay the foundation of slowing the pace of rate hikes.
Treasury yields have pulled back, pricing in a less aggressive pace of Fed rate hikes.
However, yields are off the lows recorded last week. The 10-year Treasury yield is now at 4.04%, having dipped below 3.90% last Thursday.
The dollar index too has recovered to 110.90 from last week’s low of near 109.50.
Meanwhile, the day after the Fed decision, the Reserve Bank of India will host an additional meeting of the monetary policy committee.
While Reuters reported that the meeting was most likely to discuss the central bank’s response to the government after failure, the timing of the meeting has prompted speculation of a rate hike.
Asian currencies were mostly lower.
The offshore Chinese yuan slipped to near 7.2764 to the dollar.
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