The Indian rupee is set to open steady against the U.S. dollar, holding near the 84 mark as a slight retreat in the dollar provides some breathing room.
On Tuesday, the rupee saw a mild recovery, aided by dollar sell orders from public sector banks, possibly linked to central bank intervention.
Market participants remain cautious, as traders report that the currency’s drop beyond the psychological 84 level has not sparked volatility as expected.
See also: Indian Rupee Hits Record Low Amid Dollar Demand
Currency desks at banks suggest that the absence of a sharp follow-through below 84 reflects a period of low volatility.
Traders are adjusting their strategies, taking on larger positions to extract smaller profits within a narrow range.
See: The USD/INR chart shows consolidation around 84.17 with low volatility and neutral momentum on the VT Markets app.
The dollar index (DXY) has eased to 103.18, pulling back from its recent peak, which had marked a two-month high.
This retreat came on the back of weaker U.S. Treasury yields and softer economic data.
In particular, the New York Fed’s manufacturing activity index underwhelmed expectations, prompting market participants to shift towards safer assets such as U.S. Treasuries.
Meanwhile, U.S. equities declined, with Asian stock markets following suit, further curbing risk appetite.
Market participants are now leaning towards a 25-basis-point rate cut from the U.S. Federal Reserve at its next meeting, a softer stance compared to the 50-basis-point hike seen in September.
Fed officials, including Raphael Bostic, have signalled a cautious approach, indicating only one more cut of 25 basis points this year.
The FedWatch tool also reflects this sentiment, with traders anticipating two 25-basis-point cuts before the end of 2024.
The latest NSDL data shows that foreign investors offloaded $423.2 million in Indian equities and $27.9 million in bonds on October 14.
The reduction in inflows indicates that global market participants are scaling back exposure to emerging markets, including India, amidst heightened caution.
This outflow adds pressure on the rupee and local markets, even as the dollar softens. The rupee’s outlook remains tied to dollar movements and Fed policy cues.
Traders expect subdued volatility ahead but remain on guard for any shifts in global risk sentiment or unexpected central bank actions.
As oil prices stabilise, the rupee may find support, but foreign portfolio flows remain a concern for the broader market.
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