Rupee ends weaker as markets assess Fed path, RBI's approach

The Indian rupee ended lower on Tuesday as Asian currencies broadly struggled ahead of a series of US economic data that will provide cues on the pace at which the Federal Reserve cuts interest rates.

The rupee closed at 83.9675 to the US dollar, down from 83.9175 in the previous session. The currency's intraday volatility remained muted, holding a range of three paisa through the session.

It is possible that the Reserve Bank of India (RBI) was "mildly" on offer on the dollar/rupee pair during the session "but can't be sure," a currency dealer at a private bank said.

The RBI has been unwilling to let the rupee decline past the 84 handle and has intervened a number of times over the past month, according to traders.

"Trading in the rupee at most times now is about understanding the RBI's approach," the dealer said. "When will the RBI allow the range (on the pair) to adjust higher?"

On back of the RBI's intervention that is keeping the rupee rangebound, Mecklai Financial is advising importers to hedge their liabilities for this month below 83.70 on the dollar/rupee and recommending that exporters sell near current levels.

Asia FX and Fed

Asian currencies were down on the day, adding to their decline from Monday, while the dollar index edged higher. The direction of Asian currencies through the rest of the year largely depends on the Fed's monetary policy trajectory.

Investors have fully priced in a rate cut at the Fed's September 17-18 meeting and expect the central bank to cut rates by a total of 100 basis points this year.

This could, however, change with the August jobs report, due this Friday.

Fed Chair Jerome Powell indicated at Jackson Hole last month that the central bank was monitoring a weakness in the US labour market.