MUMBAI: The Indian rupee is likely to open marginally weaker on Wednesday as traders await the US Federal Reserve’s policy decision, with focus on its updated forecasts and guidance.
The one-month non-deliverable forward indicates that the rupee will open at 86.62-86.64 to the US dollar, compared with its previous close of 86.57.
The rupee is near at its highest levels in nearly a month, largely on the back of the dollar’s decline due to worries over an US economic slowdown and a rally in the euro.
The Indian currency has climbed just over 1% so far in March.
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March tends to be seasonally favourable for the rupee, providing an added tailwind. Inflows related to intercompany borrowings of corporations alongside repatriation of profits are usually seen in the final few weeks of the month.
However, a senior FX trader at a mid-sized private sector bank reckons that the rupee’s positive run is likely to halt.
“We are near to levels were it is will be very attractive for importers to increase their hedge ratio,” he said.
Further, “at a point” the Reserve Bank of India will be stepping in to buy dollars to build up FX reserves, he said.
Asian currencies were mixed and the dollar index was mostly flat before the Fed’s decision, due during U.S. market hours.
The US central bank is widely expected to make no changes to its policy rate.
The market’s focus will be on the guidance and the updated forecast, said Julien Lafargue, chief market strategist at Barclays Private Bank and Wealth Management.
“On the guidance, the Fed could use the recent weakness in soft data to pre-empt a possible dovish tilt. This should transpire into the central bank’s updated macroeconomic forecast which are likely to show lower GDP growth ahead,” he said.
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