Rupee wrestles with rise in US yields, dollar before Fed outcome

By Nimesh Vora

MUMBAI (Reuters) – The Indian rupee is expected to struggle on Wednesday in the wake of a rise in U.S. Treasury yields and weakness in Asian currencies.

Non-deliverable forwards indicate the rupee will open at around 83.26-83.2650 to the U.S. dollar, compared with 83.25 in the previous session.

“We will have one more day in which it (USD/INR) will find a lot of buyers. That buying will not amount to much until the RBI (Reserve Bank of India) allows 83.30 to be taken out,” a spot currency trader at a bank said.

The RBI has been persistently intervening to make sure the rupee does not slip below the 83.29 record low, according to traders.

The 10-year U.S. yield rose in Asia and the dollar index inched higher. Asian currencies were mostly lower, down between 0.2% and 0.6%.

The Federal Reserve later in the day is widely expected to keep the policy rate at 5.25-5.50%. The central bank is not likely to update the economic or rate forecasts.

Some analysts expect that the Fed may soften its guidance on the need for additional rate hikes on the back of the tightening of financial conditions prompted by the rise in long maturity U.S. yields.

“We expect the Federal Open Market Committee to soften forward guidance on policy from “In determining the extent of additional policy firming that may be appropriate” to “In determining the extent of policy firming …” – taking out the word “additional”,” Morgan Stanley said in a note.

At Fed Chair Powell’s press conference, Morgan Stanley anticipate a similar tone to what he said at speech recently.

“(That of) balanced risks to the outlook, little appetite for near-term rate hikes amid tighter financial conditions,” Morgan Stanley said.

The Fed decision is “highly unlikely” to pull the rupee out it recent range, the spot trader said.

KEY INDICATORS: ** One-month non-deliverable rupee forward at 83.33; onshore one-month forward premium at 5.25 paisa

** Dollar index up at 106.75 ** Brent crude futures up 0.3% at $85.3 per barrel ** Ten-year U.S. note yield at 4.92%

** As per NSDL data, foreign investors sold a net $203.8mln worth of Indian shares on Oct. 30

** NSDL data shows foreign investors bought a net $8mln worth of Indian bonds on Oct. 30

(Reporting by Nimesh Vora; Editing by Sonia Cheema)