Indian rupee set to hit record low on hawkish Fed remarks and dollar rally

Several Federal Reserve officials repeated calls for higher interest rates

The Indian rupee is set to track the broad rise in the dollar after Fed officials, once again, adopted a hawkish tone. EPA

The Indian rupee was expected to fall below 82 per dollar and hit a record low on Friday, after several US Federal Reserve officials repeated calls for higher interest rates ahead of the release of a crucial US jobs report.

The rupee is tipped to open at 82.15 to 82.20 per US dollar, down from 81.88 in the previous session.

It is “almost certain” that the rupee will open below 82 in light of the “huge dollar demand” witnessed after normal over-the-counter trading hours on Thursday, a trader at a private sector bank said.

The rupee on the interbank trading system fell to a low of 82.28 on Thursday.

USD/INR October futures, which trade beyond OTC hours, settled at 82.39, climbing by about 35 paise in the last one and a half hours.

The rupee's slump was fuelled by traders who were caught short on the USD/INR amid strong corporate dollar demand.

Traders who Reuters inquired with said there were defence payment-related dollar outflows on Thursday. One trader said there was an outflow of $300 million pertaining to a public sector undertaking.

In opening deals on Friday, the rupee will track the broad rise in the dollar after Fed officials once again adopted a hawkish tone.

A group of Fed officials reinforced the view that the central bank was nowhere near done with its rate increase cycle as it seeks to bring down inflation, and that rates are expected to go up further.

Treasury yields rose and the dollar advanced against a basket of its major peers, while US equities slipped overnight.

The two-year Treasury yield climbed to 4.27 per cent, less than 10 basis points away from recent highs.

Asian currencies were down 0.2 per cent to 0.5 per cent. The offshore Chinese yuan declined to 7.10 to the dollar.

The focus now shifts to the monthly US jobs data due later in the day. The data will help traders assesses how the labour market is holding up to the rate increases that the Fed has delivered so far and gauge the pace of future monetary policy tightening.

Meanwhile, the rupee was expected to trade near its record low against the dollar beyond this year, buffeted by rising oil prices and an aggressive Fed, a Reuters poll found.