The Indian rupee is anticipated to begin trading higher on Thursday, bolstered by a weaker dollar amid expectations of a rate cut by the Federal Reserve in December. However, market analysts have noted that the currency has faced challenges in maintaining any significant upward momentum.
The non-deliverable forward contracts for one month suggest the rupee will open in the range of 89.14 to 89.18 against the US dollar, after closing at 89.27 on Wednesday. Throughout the week, the rupee has struggled to convert favorable indicators from Asia into sustained gains. It dropped to the 89–89.10 range on two occasions this week, first on Monday and then again on Tuesday, inciting hopes of a potential recovery.
Nonetheless, analysts reported a lack of enduring follow-through, with importers and some speculators purchasing the dollar/rupee pair during dips. “It is noticeable that intraday dips do not evolve into anything more durable. In that kind of market, the natural instinct would be to try small, tactical long (dollar) positions,” stated a currency trader from a private sector bank. He noted that taking long positions in the dollar, with a stop set below 88.80, appears to be a reasonable risk-reward strategy at this time.
In related news, the International Monetary Fund (IMF) on Wednesday adjusted India’s de facto exchange-rate regime, reclassifying it from a “stabilized” arrangement assigned two years ago to a “crawl-like arrangement.”
Dollar dynamics have also influenced the market; the dollar index decreased in Asia, on track for its fifth consecutive day of decline. The index has fallen approximately 0.8% this week, largely fueled by growing confidence that the Federal Reserve may implement another 25-basis-point rate cut next month.
The odds for a rate cut have shifted dramatically over the week, jumping from about one-in-three to nearly 85%. This change was driven by a series of dovish statements from Federal Reserve officials, including New York Fed President John Williams, prompting investors to reassess the monetary policy outlook and diminishing the dollar’s strength.
Risk assets have gained traction, reducing the demand for the dollar as a safe haven, while US Treasury yields have also decreased in response.
