Rupee gains, but to be volatile on jitters ahead of Fed policy outcome

The rupee gained about 0.4 per cent to last trade around 76.32 per dollar early on Wednesday from the previous close of 76.62, but traders cautioned the pull and push would keep the currency moves volatile on jitters ahead of the US Federal Reserve policy outcome later in the day.

The US Fed is widely expected to hike interest rates by 25 basis points on Wednesday. But traders and investors will watch for cues from the central bank on its projected policy path. Markets are pricing in as many as seven hikes this year.

“The rupee rose against the dollar as traders cheered the steady decrease in global crude oil prices, as concerns about increased domestic inflation and a wider trade imbalance faded. The rupee’s gains were restrained ahead of today’s policy pronouncement from the US Federal Reserve, which is expected to raise interest rates,” said Kshitij Purohit, Lead for International and Commodities at CapitalVia Global Research.

“Individuals are looking for clues regarding the speed of future rate hikes as the US Federal Reserve prepares to raise rates for the first time since the epidemic. According to the Chicago Mercantile Exchange’s Fed watch tool, markets expect a 25-basis point raise. Still, pricing has climbed to reflect a 70 per cent possibility of a higher 50 basis point hike at the following meeting in May,” Mr Purohit added.

Besides, continued capital outflows have weighed on the currency in recent days, and the uncertainty over the conflict in Ukraine pushed crude oil prices to multi-decade highs near $140 a barrel.

On Tuesday, foreign institutional investors (FIIs) were net sellers in the capital market as they offloaded shares worth Rs 1,249.74 crore, as per from stock exchange data.

But a strong opening for domestic bourses and oil prices fall over the last two days, during which Brent slipped below $100 a barrel for the first time this month, have helped the energy-sensitive rupee.

The Indian rupee opened more robust tracking overnight sell-off in crude oil prices, Sriram Iyer, Senior Research Analyst at Reliance Securities, told PTI. Asian and emerging market peers were stronger ahead of the US Fed meeting outcome and could lift sentiments in the domestic markets, Mr Iyer added.