Rupee may not respond to higher oil prices on RBI intervention bets

By Nimesh Vora

MUMBAI (Reuters) – The Indian rupee is likely to open little changed on Wednesday on expectations of the Reserve Bank of India keeping a check on the currency’s slip amid a rise in oil prices and U.S. Treasury yields.

Non-deliverable forwards indicate the rupee will open around Tuesday’s level of 83.2575. Oil prices jumped in Asia with the Brent crude contract racing past $92 per barrel following a flare up in the Middle East conflict. Brent is now up nearly 9% since the breakout of the conflict.

The 2-year U.S. yield hit a multi-year high of 5.25% in New York trading, while the 10-year climbed to 4.86% after U.S. retail sales last month rose more than expected.

Oil and U.S. yields will keep USD/INR “well-bid” through the session, a spot foreign exchange trader at a mid-sized private bank said, and that the RBI will be “holding up” the rupee once again.

The RBI has over the last several sessions intervened to make sure that the rupee does not fall below the 83.29 record low, according to traders. The RBI’s stranglehold on the rupee has pushed very short-dated realized volatility to the lowest in nearly 20 years.

U.S retail sales rose 0.7% last month, more than double the pace anticipated by a Reuters poll of economists, indicating that interest rate hikes have yet to cool down consumer spending. Meanwhile, the data for August was revised to show sales advanced 0.8% instead of 0.6% as previously reported.

The data underpinned bets that the U.S. Federal Reserve will hold interest rates higher for longer. The odds of a Fed rate hike at the December meeting inched up.

The U.S. retail sales figures “point to robust consumer spending with no imminent signs of recession and the rates space reacted accordingly,” DBS Research said in a note.

KEY INDICATORS: ** One-month non-deliverable rupee forward at 83.32; onshore one-month forward premium at 7.75 paisa

** Brent crude futures up 2.1% at $91.8 per barrel ** Dollar index at 106.16 ** Ten-year U.S. note yield at 4.83% ** As per NSDL data, foreign investors sold a net $47.2 mln worth of Indian shares on Oct. 16

** NSDL data shows foreign investors bought a net $61.4 mln worth of Indian bonds on Oct. 16

(Reporting by Nimesh Vora; Editing by Dhanya Ann Thoppil)