India rupee to rally after data reaffirms Fed done with rate hikes

By Nimesh Vora

MUMBAI (Reuters) – The Indian rupee is expected to rise at open on Monday after softer-than-expected U.S. jobs data reinforced expectations that the Federal Reserve will not hike interest rates further.

Non-deliverable forwards indicate the rupee will open at around 83.08-83.12 to the U.S. dollar compared with 83.2850 in the previous session.

“Taking into account how low volatility has been, that is a decent sized move at open,” a forex trader at a bank said.

“The question now will how much of the opening move actually sticks.”

Asian currencies extended last week’s advance after the dollar index slumped on Friday following data that indicated that the U.S. labor market was cooling.

U.S. non-farm payrolls increased by 150,000 jobs last month after rising by 297,000 in September and compared with a 180,000 increase expected by economists polled by Reuters.

Further, the unemployment rose and fewer jobs were added in August and September than was previously estimated.

The 10-year U.S. Treasury yield dropped to the lowest in more than a month.

The odds of a Fed rate hike at the December meeting are now at just 10%, down from 20% a week and 30% a month back, according to the CME FedWatch Tool.

“Last week’s Fed meeting and latest data flow suggest the rate hike cycle is most likely over. This development will provide much-needed respite to Asia’s currency and bond markets,” DBS Research said in a note.

The Korean won, the Thai baht and the Malaysian ringgit climbed at least 1% each.

“It’s to be fully expected that the rupee will underperform in times when the dollar is under stress,” the forex trader said.

Meanwhile, India’s foreign exchange reserves rose by $2.6 billion to a one-month high of $586.1 billion in the week ending Oct. 27, thanks largely to the Reserve Bank of India’s swap maturity.

KEY INDICATORS: ** One-month non-deliverable rupee forward at 83.14; onshore one-month forward premium at 5.5 paise ** Dollar index at 105.06 ** Brent crude futures up 0.6% at $85.4 per barrel ** Ten-year U.S. note yield at 4.59% ** As per NSDL data, foreign investors sold a net $142.7 mln worth of Indian shares on Nov. 2

** NSDL data shows foreign investors bought a net $131.7 mln worth of Indian bonds on Nov. 2

(Reporting by Nimesh Vora; Editing by Mrigank Dhaniwala)