The Indian rupee is expected to decline on Wednesday as worries over the U.S. banking sector reappeared, prompting a slide in U.S. equities and boosting the U.S. dollar.
Non-deliverable forwards indicate the rupee will open at around 81.98-82.00 to the U.S. dollar compared with 81.9125 in the previous session.
The USD/INR will open with a “slight bid tone” but based on how the pair has been “it is doubtful” there will be a major follow-through, a spot trader said.
“For it (USD/INR) to catch a meaningful uptrend, there needs a sustained and significant deterioration in risk.”
The S&P 500 Index declined by the most in over a month overnight, the dollar rose against its major peers and U.S. yields declined as a tumble in regional U.S. banks’ shares reignited concerns over the banking sector.
First Republic Bank shares nosedived to a record low after the bank disclosed a $100 billion plunge in deposits. A source told Reuters the bank is considering asset sales.
“Bank stresses remained the barometer for risk sentiment on Tuesday, with price action across macro markets emblematic of a flight to quality assets,” Morgan Stanley said in a daily note to clients.
The dollar index rose half a percent on Tuesday and safe-haven demand fuelled a near 20-basis point (bps) decline in the two-year U.S. yield.
The odds of a rate hike next week by the U.S. Federal Reserve dipped slightly, but the base case remained that of a 25-bps hike.
Data released on Tuesday added to the weak risk mood. U.S. consumer confidence dropped to a nine-month low in April, heightening the risk that the economy could fall into recession this year. The U.S. Richmond Fed manufacturing index slid to -10 in April, the fourth straight month of contraction.
