The Indian rupee is likely
to remain under pressure on Wednesday, with a Federal Reserve
rate hike later in the day adding to the strain from high oil
prices.
The rupee is expected to open marginally weaker and
is at risk of slipping past the 96 mark, traders said, after
settling at 95.9550 to the dollar on Tuesday.
The local currency has fallen for seven straight sessions,
shedding about 1.5% despite the central bank’s near-daily
intervention to support it.
The slide has been largely one-way, with the rupee weakening
to just shy of the 96-a-dollar mark from around 94.30 about two
weeks ago.
The rupee on Tuesday broke below 95.80, a level traders had
seen as a key RBI-supported floor, opening the door to further
losses.
A sustained break of 96 could accelerate the move lower, a
currency trader at a bank said.
Fed hike looms
Interest rate futures are now pricing in more than a 90%
chance of a Fed rate hike later on Wednesday, up from about 60%
a week back, according to a CME FedWatch Tool.
The repricing has come in the wake of Brent crude climbing
towards $110 a barrel, heightening concerns over inflation and
pushing US yields to multi-year highs.
With the hike now largely priced in, investors are likely to
focus on what the Fed says about the path ahead.
Markets will be watching the Fed’s updated dot plot and
economic projections for clues on whether policymakers see scope
for another hike later this year. Chair Kevin Warsh’s comments
on oil and inflation will be scrutinised.
“We suspect that the Fed will want to nudge the market away
from pricing an October hike, too, confidently,” however, it will
not do it in the statement, Goldman Sachs said in a note.
Instead, Warsh could say in his press conference that before
deciding on further steps, the Fed will “carefully assess”
incoming data or will want to see upcoming inflation reports,
the bank said.