The Indian rupee reversed the four-day rising trend on Wednesday but was still trading at a 28-month high against the US dollar. The rupee opened down by almost 10 paise at 63.58 against the US dollar on Wednesday but very quickly pared off some of the losses and was trading at a 28-month high. The domestic currency rupee made a top of 63.5 apiece US dollar on Wednesday. The Rupee was trading down 7 paise at 63.55 vs the US dollar in the wee hours of trading at the interbank foreign exchange market on Wednesday. Earlier yesterday, the rupee added as much as 20 paise against US dollar to close at 63.48 — almost a two-and-half-year high. The Reserve Bank of India fixed the reference rate of the rupee at 63.6728 against the US dollar on Tuesday.
Several reports indicate there is a general consensus in the US that the Fed will be cautious about its rate hike stance if inflation does not rise to the targeted levels. As a result, the US market has been factoring-in two rate hikes in 2018 compared to the earlier assumption of three hikes. The rupee has been strengthening against the US dollar for four consecutive sessions while the dollar index fell to a three-month low of 91.84. On Wednesday, Rs 13,756 crore of investment limits in corporate bonds will be auctioned to foreign portfolio investors (FPIs). As a result, certain market participants are believed to have taken a short position on the dollar in anticipation of significant inflows.
However, the rally in the rupee might be short-lived considering that oil prices are on the rise and inflation outlook remains bleak. Brent crude was trading at $66.5/barrel on Wednesday after having scaled to the level of $67.29/barrel in the on Tuesday afternoon. Since last week, Brent crude has continued to stay above the $66/barrel level. The market is also watching out for the consumer price index (CPI) inflation data for the month of December which is set to be released next week. The Reserve Bank of India had stated in its fifth bi-monthly policy that the impact of house rent allowance by the government is expected to peak in December.