The Indian rupee will have to contend with the higher run in the U.S. dollar and yields at the open on Friday, which may push the local currency to a new all-time low.
The one-month non-deliverable forward indicated that the rupee will open at 84.87-84.88 to the dollar, compared with 84.8575 in the previous session and near the all-time low of 84.88 hit on Thursday.
The dollar index climbed past the 107 handle in the New York session on Thursday to its highest in more than two weeks. The 10-year U.S. Treasury yield rose about six basis points.
Asian currencies declined on Friday, with the offshore Chinese yuan dipping past 7.28 to the dollar. Comments from a top trade adviser to U.S. President-elect Donald Trump warning China against currency manipulation likely weighed on the yuan.
A weaker yuan alongside "the sweeping" problems that the rupee is facing, "will likely result in one more busy day" for the Reserve Bank of India (RBI), a currency trader at a bank said.
To support the rupee, India's central bank has been selling dollars in the spot market and conducting buy/sell swaps. The latter ensures that the intervention in the spot market does not have an impact on rupee liquidity and on forex reserves.
The RBI's action in the swap market has distorted the dollar/rupee forward premiums, with near maturities yielding more than far maturities.
SOFT US DATA
The run up in the dollar and U.S. yields is despite data further reinforcing high expectations that the Federal Reserve will cut rates next week.
U.S. initial jobless claims increased last week and U.S. producer inflation data indicates that the Fed's favoured inflation gauge is likely to show a mild reading for November.
KEY INDICATORS:
** One-month non-deliverable rupee forward at 85.02; onshore one-month forward premium at 16.5 paise
** Dollar index up at 107.04
** Brent crude futures at $73.4 per barrel
** Ten-year U.S. note yield at 4.32%
** As per NSDL data, foreign investors bought a net $23 million worth of Indian shares on Dec. 11
** NSDL data shows foreign investors bought a net $171 million worth of Indian bonds on Dec. 11