Rupee flat as traders mull Fed rate path, keep eyes peeled for flow clues

The Indian rupee was little changed on Tuesday as retreating oil prices offered comfort, even as rising expectations of Federal Reserve rate hikes this year kept traders wary of going long on the South Asian currency.

The rupee was at 94.67 per dollar, nearly flat compared to its ‌close of ⁠94.6775 ⁠in the previous session.

The local currency has recovered from record low levels and steadied since policymakers rolled out a salvo of measures to draw dollar inflows and oil prices cooled on signs of progress in the U.S.-Iran peace talks. However, the prospect of a hawkish Fed has injected fresh uncertainty.


Bank of America and Deutsche Bank both ⁠now expect ‌the Fed to raise rates this year on strength in the labour market and elevated inflation concerns after the ⁠central bank kept rates unchanged in June, a departure from their prior forecasts of steady rates.

Fed fund futures are pricing in a more than 70% chance of a 25-basis-point hike by September.

The prospect of higher interest rates in the world's largest economy presents a headwind for the rupee but traders and analysts are also watching out for the scale of ‌inflows that materialises out of policy measures to support the currency.

"We expect the next leg of gains in the INR bonds and currency ⁠on a pickup in non-resident deposit and offshore borrowings, spurred by the concessional swap facilities," DBS said in a note.

Nomura expects the measures to draw about $55 billion, while Axis Bank sees scope for around $100 billion.

Elsewhere, Asian stocks were under pressure, with Korean stocks slumping nearly 10% and dragging MSCI's gauge of regional stocks lower by over 3%. Indian equities were down a more modest 0.3%.