Key Points:
The Indian rupee (Symbol: USDINR) is expected to open on the back foot as the U.S. dollar continues to strengthen, driven by growing expectations that the Federal Reserve will deliver a smaller rate cut next month.
The 1-month non-deliverable forward shows the rupee trading around 83.92 to 83.94 against the U.S. dollar, compared to 83.82 on Tuesday, and edging close to its record low of 83.9850.
Picture: USDINR price drop as the U.S. dollar gains strength, as observed on the VT Markets app.
With Indian markets closed on Wednesday for a public holiday, the market open on Thursday reflects two days of global market shifts, and the pressure on the rupee is evident.
The strength of the dollar stems from U.S. private payroll data, which showed stronger-than-expected job growth. This led market participants to believe that the upcoming non-farm payroll report, due on Friday, will also reflect a robust labour market.
As a result, the U.S. dollar index (Symbol: USDX) has risen for four straight sessions, touching a three-week high. Traders have scaled back their expectations for a 50-basis point interest rate cut by the Federal Reserve in November, with futures now indicating a 1-in-3 chance of such a move, compared to nearly 60% a week ago. This shift in sentiment is keeping the dollar strong, which in turn weighs on the rupee.
The focus remains on U.S. jobs data due this Friday. It is expected that the rupee will stay within its current range unless the U.S. jobs data surprises to the upside. In that case, the USDINR currency pair could test the 84.10 level, but without such a surprise, the rupee is likely to remain capped within this range. Traders are adopting a wait-and-see approach, aware that a stronger dollar could push the rupee to new lows.
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