Rupee to ignore Fed minutes; downward bias By Reuters

By Nimesh Vora

MUMBAI (Reuters) – The Indian rupee is likely to open little changed on Thursday after largely dovish minutes from the U.S. Federal Reserve failed to lift Asian benchmarks.

1-month non-deliverable strength indicated that the rupee will open barely changed from 83.9225 in the previous session.

The rupee’s recent weakness proved short-lived, with the local currency falling back within a short distance of the lifetime low of 83.9725. The rupee, which managed to rally to 83.7550 on Tuesday, came under renewed pressure amid hedging by importers and weak portfolio flows.

The local currency fell 0.16% on Wednesday, its worst day in nearly two months.

“Yesterday’s move would not have been expected by most. It’s just more evidence of the extent of the underlying demand for dollars,” said a currency trader at a bank.

The short-term bias on the rupee is to the downside “or at least it will hold close to 84,” he said.

The Reserve Bank of India has regularly intervened in various markets to prevent the breakout from going above 84.

FED RATE REDUCES CLOSED BETS

The Fed appears on track to cut interest rates at its September meeting, after a “large majority” of officials indicated so in the minutes of its July 30-31 meeting. The minutes, in fact, showed that some policymakers may have been willing to cut borrowing costs at the July meeting.

A September rate cut had already been priced in full minutes before.

The minutes “reduce a dovish tone,” ANZ Bank said in a note.

Investors see the Fed cutting rates by a total of 100 basis points over the remaining three meetings this year.

Downward revisions to US payrolls further encouraged rate cut bets.

However, Asian currencies were weaker on the day, taking a break from the recent rally.

KEY INDICATORS:

** One month undeliverable rupee forward at 84; onshore one month forward at 8 paise

** The dollar index rose to 101.24

** futures down 0.2% at $75.9 a barrel

** Ten-year US note yield at 3.81%

** According to NSDL data, foreign investors bought a net worth of $481.6 million in Indian stocks on August 21

** NSDL data shows foreign investors bought a net worth of $107.7 million worth of Indian bonds on August 21