Rupee ended higher, Dollar higher vs. Yen

Monday,   17-Dec-2018   05:23 PM (IST)

The Indian rupee ended the session higher at 71.5450/5550 levels compared to its opening at 71.79/80 levels after touching the high of 71.5125/5225 levels supported by narrowing local trade deficit amid lower crude oil prices, even while investors cautiously await the Federal Reserve’s monetary policy decision this week. Rupee traded in the range of 71.5125-71.8675 levels. Most Asian currencies ended mixed against the greenback. Indian shares ended higher today led by gains in financial companies, as strong momentum continued from last week following state election results and the appointment of Shaktikanta Das as the central bank governor. The benchmark Sensex closed up 0.85 percent at 36,270.07, its highest close since Dec. 4, while the broader Nifty ended 0.77 percent higher at 10,888.35, having earlier crossed the 10,900 level for the first time in a fortnight. Indian government bonds fell for a second session, as most participants deferred purchases awaiting cues on U.S. and local interest rates. In the forward segment 1mth, 3mth and 6mth annualized premia ended the day at 3.85%, 3.78% and 3.90% respectively.

The dollar held near a 18-month high on Monday, bolstered by safe-haven buying as heightened concerns of a global economic slowdown reduced appetites for riskier assets such as stocks and Asian currencies. Weaker-than-expected economic data from China and Europe and fears of a possible U.S. government shutdown spooked investors away from stocks toward the greenback and yen. Apart from fears of a global economic slowdown, markets are also focusing on the likely trajectory of U.S. monetary policy. The Federal Reserve is set to raise interest rates by 25 basis points at its two-day meeting that opens Tuesday. The central bank has lifted rates eight times since December 2015 in a bid to restore policy to more normal settings after having slashed borrowing costs to near zero to combat the financial crisis a decade ago. With the hike largely factored in by the market, larger moves in the dollar will be guided by the Fed’s forward guidance. According to their projections in September, the median view among the Fed’s policymakers was for three rate hikes in 2019. However, interest rate futures used to gauge the probability of further hikes are pricing in only one hike in 2019. Traders believe that higher U.S. borrowing costs will likely hurt U.S. growth momentum and ultimately force the Fed to pause its monetary tightening path. Recent comments by Fed officials have also been read as dovish by some analysts. Last month, Fed Chairman Jerome Powell said rates were near the range of policymakers’ estimates of “neutral” - the level at which they neither stimulate nor impede the economy. The Bank of Japan has a meeting on Dec. 19-20, at which policy is expected to remain highly accommodative as inflation remains well below the its target.