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The Indian rupee is anticipated to start on a higher note this Wednesday as the prospects of the U.S. Federal Reserve refraining from raising interest rates have weakened the demand for the U.S. dollar. Non-deliverable forwards suggest that the USD/INR pair will open at approximately 83.18-83.20 to the U.S. dollar, a slight improvement from the previous session’s 83.2450.

The U.S. dollar index, represented as DXY, experienced a dip to 105.74, with Asian currencies, led by the Korean won, gaining strength. Additionally, Brent crude oil prices held steady around $88 per barrel, contributing to the rupee’s favorable conditions.

A forex spot trader at a public sector bank noted that following the initial surge resulting from the Israel conflict, oil markets have remained relatively stable, which bodes well for the Indian rupee. In line with other Asian currencies, the USD/INR pair is expected to exhibit a somewhat bearish sentiment at the opening, but it should then remain within a specific trading range.

The U.S. dollar index has encountered challenges since reaching a year-to-date high of 107.34 the previous week. Furthermore, U.S. Treasury yields, both short-term and long-term, have seen a decline. This decline is attributed to indications from Federal Reserve officials that additional rate hikes may not be necessary. Several policymakers have implied that the increase in long-term Treasury yields has lessened the urgency for further policy rate hikes.

Minneapolis Fed President Neel Kashkari stated that it is “possible” that the recent surge in yields on longer-term Treasuries could mean the Fed may not need to raise interest rates as aggressively as previously thought. Atlanta Fed President Raphael Bostic went even further, stating that the U.S. central bank may not need to raise borrowing costs any further.

The minutes from the Fed’s September meeting are scheduled for release during U.S. trading hours on Wednesday. These minutes may offer insights into the “surprisingly hawkish guidance” provided by the Fed during that meeting, as noted by Michael Hewson, chief market analyst.

Key Indicators:

  • One-month non-deliverable rupee forward at 83.28; onshore one-month forward premium at 11.25 paisa
  • Dollar index (DXY) down at 105.72
  • Brent crude futures up 0.4% at $88 per barrel
  • Ten-year U.S. note yield at 4.63%
  • NSDL data indicates that foreign investors bought a net $92.8 million worth of Indian shares on October 9
  • NSDL data also shows that foreign investors sold a net $58.5 million worth of Indian bonds on October 9.

In summary, the Indian rupee’s upward momentum is expected to continue as the U.S. dollar weakens, driven by the likelihood of the Federal Reserve not pursuing further interest rate hikes. The rupee’s strength is further supported by stable oil prices and improving sentiment in Asian currency markets.