Indian Rupee Poised for Positive Start, Supported by Asian Currencies, Awaiting Powell’s Remarks

The Indian rupee is expected to open slightly stronger on Monday, benefiting from gains in most Asian currencies and positive market sentiment following the Federal Reserve’s recent rate cut. However, traders anticipate that month-end dollar demand from importers and cautiousness ahead of Federal Reserve Chair Jerome Powell’s remarks could temper the rupee’s gains.

One-month non-deliverable forward contracts suggest that the rupee will open around 83.68-83.70 per U.S. dollar, a marginal improvement from its previous close of 83.70. Asian currencies are broadly trading higher, with the Malaysian ringgit and Thai baht leading the gains, while the offshore Chinese yuan remains strong, trading above 7 per U.S. dollar.

Despite the positive regional cues, analysts believe the rupee’s appreciation will be limited due to importer demand for dollars, a typical pattern observed towards the end of the month.

The rupee has enjoyed its best monthly performance since January, fueled by strong risk appetite following the Fed’s initiation of its rate-cut cycle and robust portfolio inflows into Indian markets. Overseas investors have poured nearly $11 billion into local bonds and equities in September, representing a record monthly inflow.

The RBI’s intervention in currency markets to absorb dollar inflows has contributed to a record high of $692.3 billion in India’s foreign exchange reserves as of September 20th.

Investors will be closely watching Powell’s remarks later on Monday for insights into the Fed’s future policy direction, particularly regarding the magnitude of the next rate cut, expected in November. Geopolitical tensions in the Middle East are also adding to market uncertainty.

“The potential impact on Asian currencies stems from the risk of rising oil prices,” noted MUFG Bank in a research note. “However, a potential increase in oil production by Saudi Arabia to regain market share could help cap oil price increases.”

Key Takeaways:

• The Indian rupee is expected to open slightly stronger, supported by gains in Asian currencies and positive sentiment following the Fed’s rate cut.
• Importer demand for dollars and anticipation of Powell’s remarks are likely to limit the rupee’s appreciation.
• The rupee is poised for its best monthly performance since January, driven by strong risk appetite and robust portfolio inflows.
• Investors will be closely watching Powell’s comments for clues about the Fed’s next rate cut and the potential impact of geopolitical tensions on oil prices.

The rupee’s near-term performance will likely be influenced by a combination of domestic factors, such as importer demand for dollars and the RBI’s currency management strategy, as well as global developments, including the Fed’s monetary policy decisions and geopolitical risks.