Rupee surging on bets could slow pace of Fed rate hike

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MUMBAI — The Indian rupee is expected to open higher against the dollar on Thursday after the U.S. currency plunged on speculation that the Federal Reserve may slow the pace of its interest rate hikes.

The rupiah was seen around 82.10-82.20 to the dollar in initial trades, compared to its Tuesday close at 82.7250. The markets were closed on Wednesday for a local public holiday.

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The dollar index was at around 109.75, hovering near its lowest level in over a month. The dollar gauge was near 112 by the time the rupee’s over-the-counter (OTC) markets closed on Tuesday.

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The “big dollar correction” will help the rupee “get off to a very good start today,” a Mumbai-based bank dealer said.

“You would expect 82 to be strong support (for the USD/INR pair) and there will be decent buying interest for the dollar there.”

The dollar’s decline was fueled by bets that the weakening US economy could prompt the Fed to reassess the extent of its rate hikes from next month.

Views that the Fed could begin to pivot in December were bolstered by weak US housing data this week, which showed house prices and sales had fallen, confirmed that the Fed’s attempts to slow down the world’s largest economy are working.

Treasury yields have fallen, with the 10-year yield now sitting at 4.02%, about 30 basis points from its recent highs. The odds of a 75 basis point Fed rate hike in December have fallen to nearly 1 in 3 from around 75% a week ago.

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The Bank of Canada’s (BoC) policy decision also boosted expectations of a less hawkish Fed.

The Bank of Canada announced a lower-than-expected rate hike of 50 basis points on Wednesday and said future increases would be influenced by its assessment of how tighter policy has proven effective in dampening demand and reduce inflation.

KEY INDICATORS: ** 1-month forward non-deliverable rupee at 82.6; Onshore 1-month futures premium at 20.5 paise **USD/INR NSE Oct futures settled Tuesday at 82.8750 **Dollar index at 109.74 **Brent futures up 0 .3% to $96 a barrel ** US 10-year note yield at 4.02% ** SGX Nifty futures next month up 0.5% to 17,900 ** As per NSDL data , foreign investors bought $69.6 million net worth of Indian stocks on October 21

** NSDL data shows foreign investors sold $4.1 million net of Indian bonds on October 21 (report by Anushka Trivedi in Mumbai; editing by Rashmi Aich)