Rupee to inch up after “slightly dovish” Fed; US yields decline

By Nimesh Vora

MUMBAI (Reuters) – The Indian rupee is expected to open marginally higher on Thursday on the back of a fall in U.S. Treasury yields after a slightly dovish stance from the Federal Reserve.

Non-deliverable forwards indicate rupee will open at around 83.24 to the U.S. dollar compared with the close of 83.28 in the previous session.

The currency reached a record low of 83.2950 in the dying minutes of Wednesday’s session. On the interbank order matching system, the rupee had dropped to 83.3675.

“It will be a relief (for the rupee) that at least at open there will no fallout of what happened late yesterday,” a forex spot dealer at a bank said.

“It looks like that after the brief excitement yesterday, we will be back to a quiet day.”

The Fed kept the policy rate unchanged at 5.25-5.50%, in line with expectations. However, some analysts reckon that the tone of Fed Chair Jerome Powell’s press conference was dovish.

“We saw the FOMC (Federal Open Market Committee) statement and the press conference slightly dovish overall, and the market appeared to agree,” Goldman Sachs said in a note.

Goldman Sachs pointed out that the FOMC statement acknowledged the recent tightening in financial conditions, and that Powell laid out conditions under which the tightening would displace the need to hike.

Powell further clarified that above-potential growth on its own would not be enough to warrant another rate hike, downplaying the 1% jump in one-year Michigan inflation expectations, Goldman Sachs said.

The 10-year U.S. Treasury declined to 4.71%, a near 16-basis-point fall from what it was prior to the FOMC statement. The 2-year U.S. yield dropped below 5% and the odds of a Fed rate hike at the December meeting were down to 15%.

Asian currencies and equities rallied. The Korean won climbed 1%.

KEY INDICATORS: ** One-month non-deliverable rupee forward at 83.28; onshore one-month forward premium at 5.75 paisa ** Dollar index down at 106.32 ** Brent crude futures up 1% at $85.5 per barrel ** Ten-year U.S. note yield at 4.71%

** As per NSDL data, foreign investors sold a net $52 mln worth of Indian shares on Oct 31

** NSDL data shows foreign investors bought a net $95.9 mln worth of Indian bonds on Oct 31

(Reporting by Nimesh Vora; Editing by Janane Venkatraman)