By Nimesh Vora
MUMBAI (Reuters) – The Indian rupee was higher on Thursday, in the wake of the dollar’s decline following the U.S. Federal Reserve’s policy decision, but the local currency was unable to pierce a key level in early trades.
The rupee was at 81.7225 to the U.S.
dollar by 10:54 a.m. IST, up from 81.8175 in the previous session.
Other Asian currencies fared better, with the Korean won up about 1% and the offshore Chinese yuan managing to move up to near 6.90 to the dollar.
There was “little reason” for rupee-long positions to take on more bets considering the opening price action and how the rupee is doing relative to other Asian currencies, a sales person at a mid-sized private bank said.
“We are in for another day in which the opening dip (on the USD/INR) will be reversed.”
Asian currencies got a fillip after the Fed opted for a 25 basis points (bps) rate hike and shifted to a conditional pause.
The Fed no longer expects that “some additional policy firming” is needed and, instead, adopted a softer, more flexible and conditional language around economic and financial developments when considering its next move, Morgan Stanley said in a note.
Fed Chair Jerome Powell Chair Powell pointed out that the extent to which additional policy will be needed will depend on incoming data.
Further, the Fed statement noted that tighter credit conditions are likely to weigh on economic activity, hiring and inflation, which is another reason the U.S.
central bank is unlikely to continue raising rates.
U.S. yields dropped overnight, while the dollar weakened against its major peers and oil prices dropped. Brent crude is at its lowest level since mid-March.
Tracking the drop in U.S.
yields, rupee forward premiums rose. The 1-year implied USD/INR yield increased by 6 bps to 2.29%.
(Reporting by Nimesh Vora; Editing by Savio D’Souza)
