Indian rupee may open flat; RBI support counted on amid risk aversion


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MUMBAI — The Indian rupee was set to open flat against the dollar on Tuesday amid a weak risk appetite and on expectations that the Reserve Bank of India would step in to prevent the local unit from touching a new record low.

The rupee is expected to trade around 79.85-79.88, compared with 79.8675 in the previous session. The local unit has fallen for three straight sessions and is within the spitting distance of its lifetime low of 80.0650 hit last month.

The rupee remains in a downtrend, but the momentum on the downside will likely only build once rupee makes a new record low, a trader at a Mumbai-based bank said.

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“The likelihood of RBI stepping in will keep speculators from building new long positions (on USD/INR) till rupee remains above 80.”

The RBI has been selling dollars to shield the rupee from the volatility fueled by the U.S. Federal Reserve’s aggressive rate hikes. India’s foreign exchange reserves have dropped to its lowest level since November 2020.

Asian shares declined on Tuesday and SGX Nifty indicated that Indian equities were likely to add to a 2.5% decline over the previous two sessions. U.S. equity futures were little changed after the S&P 500 Index on Monday suffered its worst session in more than two months.

The concerns that the policy tightening by central banks to tame price pressures will fuel an economic downturn impacted demand for risk assets.

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The 10-year Treasury yield on Monday climbed to the highest level in about a month amid bets of a hawkish Fed. Supported by yields and risk aversion, the dollar rose against its major peers.

Odds of a 75 basis points rate hike by the Fed next month are now slightly higher than that of a 50 basis points increases, according to the CME FedWatch Tool.

Asian currencies declined on Tuesday. The offshore Chinese yuan fell to 6.8748 to the dollar. Meanwhile, foreign investors were net seller of Indian equities on Monday, according to preliminary BSE data.

KEY INDICATORS: ** One-month non-deliverable rupee forward at 80.12; onshore one-month forward premium at 22.50 paise ** USD/INR NSE August futures closed on Monday at 79.88 ** USD/INR forward premium as of Aug. 22 for end current month is 3.5 paise ** Dollar index at 108.9 ** Brent crude futures up 0.7% at $97.2 per barrel ** Ten-year U.S. note yield at 3.02%, India 10-yr bond yield at 7.2702% ** SGX Nifty nearest-month futures down 0.4% at 17,412 ** As per NSDL data, foreign investors bought a net $192.1mln worth of Indian shares on Aug. 19 ** NSDL data shows foreign investors bought a net $0.7mln worth of Indian bonds on Aug. 19

(Reporting by Nimesh Vora)


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