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The Indian rupee is gearing up for what seems like a challenging day ahead. Despite non-deliverable forwards indicating a relatively stable opening, several factors are poised to exert pressure on the currency.

USDINR is expected to begin around 83.12-83.13 to the U.S. dollar, a minor shift from the previous session’s 83.1450. While the initial outlook may appear steady, the rupee is expected to grapple with mounting challenges throughout the day.

One significant factor contributing to the rupee’s potential decline is month-end dollar demand. As a forex trader at a private bank puts it, “If the Reserve Bank of India doesn’t supply dollars, we could see a weaker rupee.”

Another key player in this currency equation is the 10-year U.S. treasury yield, which has surged beyond 4.55%. This marks its highest level since October 2007, driven by expectations that the U.S. Federal Reserve will maintain higher interest rates for an extended period.

Minneapolis Federal Reserve Bank President Neel Kashkari weighed in, stating, “If the economy is fundamentally much stronger than we realized, on the margin, that would tell me rates probably have to go a little bit higher, and then be held higher for longer to cool things off.”

The dollar index (DXY) has surged to its highest point since November of the previous year, currently standing at 106. This strength in the dollar is adding to the rupee’s woes.

Among Asian currencies, the Thai baht leads in losses, down by 0.58%, while Brent crude oil futures have dipped to $93.19.

The Indian rupee has shown remarkable resilience compared to its Asian counterparts, largely thanks to interventions by the Reserve Bank of India (RBI) to support the currency. However, ING bank suggests that this resilience may be tested in the near future.

On another note, investors are eagerly awaiting the decision on whether India will be included in the FTSE Emerging Markets Government Bond Index, with the verdict expected on September 28.

In summary, the Indian rupee faces a complex web of factors, from surging U.S. yields to dollar strength, month-end demand, and potential shifts in its resilience. Traders and investors will be closely watching how these elements play out throughout the day.