Worries over India's growth outlook, the widening trade deficit and increasing interest in hedging future dollar payments are bogging down the rupee, alongside higher U.S. yields.The Indian rupee is poised to drop to an new all-time at the open on Thursday, weighed down by wagers that the currency will decline further and on U.S. Treasury yields hitting multi-month highs.
The 1-month non-deliverable forward indicated that the rupee will open at 85.90-85.92 to the U.S. dollar, down from 85.8450 in the previous session. The currency hit a lifetime low of 85.8575 on Wednesday, a pattern that has occurred repeatedly in recent weeks.
There is "simply no letting up" to the ongoing downtrend in the rupee, a currency trader at a bank said.
The "heavy" interest in taking bearish positions on the currency, especially in the non-deliverable forwards (NDF) market means that "there isn't even the tiniest bit of respite," he said.
The Reserve Bank of India has been regularly intervening to support the rupee by selling dollars via state-run banks, which has helped slow the pace of the currency's decline, not arrested it.
Worries over India's growth outlook, the widening trade deficit and increasing interest in hedging future dollar payments are bogging down the rupee, alongside higher U.S. yields.
The 10-year U.S. yield scaled a more than eight-month high on Wednesday on worries that President-elect Donald Trump's polices would lead to higher U.S. inflation and boost growth. This, in turn, is likely to prompt the Federal Reserve to take a cautious approach to cutting borrowing costs.
Interest rate futures are pricing in just 40 basis points of Fed rate cuts in 2025. The U.S. central bank had slashed rates by 100 bps over the last three meetings.
The dollar has been marching higher, supported by the U.S. yields and in anticipation of Trump's trade policies. The dollar index has rallied 5.2% since Trump's election win last November.
