Rupee set to open lower amid weakened risk appetite

Rupee to open lower: The rupee is set for a slightly lower opening on Tuesday, facing pressure from the advancing US dollar amid weakened risk appetite. Non-deliverable forwards suggest that the rupee may begin trading at approximately 82.92-82.94 against the US dollar, a marginal shift from the previous session's close at 82.88.

Despite the dollar's recent gains, the rupee marked its ninth consecutive session of appreciation on Monday, hitting a more than four-month high. An FX trader at a bank said that USD/INR "may very well be better bid at open," but speculates that the 83 handle is unlikely to be breached. The overall trend for USD/INR remains in a downtrend, and the initial uptick is perceived as an opportunity for selling on rallies.

Across Asia, currencies witnessed a dip ranging from 0.2 per cent to 0.6 per cent, while the dollar index rose to 102.84, propelled by losses in Asian shares and US equity futures. Central bank officials pushing back on rate cuts contributed to souring risk appetite and an increase in yields.

Market attention is directed towards Federal Reserve Board Governor Christopher Waller's speech scheduled for later on Tuesday. Waller's remarks in late November had previously convinced investors of a potential Fed pivot towards rate cuts, triggering a rally in equities and bonds. Given the recent pushback from ECB officials on anticipated rate cuts, Waller's comments are deemed critical in shaping market expectations.

Investors currently anticipate an 80 per cent chance of a Fed rate cut in March, with expectations for subsequent rate cuts in successive meetings throughout the year. Against this backdrop, the Indian merchandise trade deficit in December came in lower than expected at $19.8 billion, supported by higher exports.

Key indicators in the currency landscape include a one-month non-deliverable rupee forward at 83.02 and onshore one-month forward premium at 10 paise. The dollar index is up at 102.82, Brent crude futures stand at $78.1 per barrel, and the ten-year US note yield has risen to 4 per cent.

As per NSDL data, foreign investors sold a net $51.9 million worth of Indian shares on January 12, while they bought a net $314.8 million worth of Indian bonds on the same day.

(With Reuters inputs)