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Indian rupee seen lower, Fed rate outlook weighs on Asian peers

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MUMBAI — The Indian rupee is tipped to open lower against the dollar on Thursday, as prospects of further aggressive policy tightening by the U.S. Federal Reserve weighed on Asian currencies and equities.

The rupee is seen at around 79.55 per dollar in initial trades, compared with 79.45 on Tuesday. Indian financial markets were closed on Wednesday.

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On Tuesday, the rupee had its best session in a year, which traders attributed to long dollar positions stopping out and renewed chatter about the inclusion of Indian bonds into global indices.

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Tuesday’s “against-the-trend” rally on the rupee “was surprising to say the least,” a dealer at a Mumbai-based bank said.

Still, the rupee remains in a firm downtrend, and “it is most likely” that the Tuesday session “was an aberration.”

The dollar index, was hovering near 109 and Asian currencies were broadly lower. Risk aversion and high Treasury yields boosted demand for the safe haven dollar.

U.S. equity futures extended losses after the S&P 500 Index fell for the fourth straight day, while major Asian gauges were down up to 2%.

The likelihood that the Fed’s continued fast pace of rate hikes will push an economic downturn, has been weighing on demand for risky assets. Fed officials have pushed against expectations of a slower pace of rate hikes and that the U.S. central bank will cut rates later next year.

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Souring risk sentiment further, is the possibility of the European Central Bank opting for a large 75 basis points rate hike this month. Headline euro zone inflation for August rose to another record high, beating expectations.

Meanwhile, data released Wednesday showed India’s economy grew 13.5% in the April-to-June quarter. And, while growth was at its fastest pace in a year, it was below expectation of economists polled by Reuters.

The rupee at open is expected to receive support from the slump in oil prices.

KEY INDICATORS:

** One-month non-deliverable rupee forward at 79.75; onshore one-month forward premium at 20.5 paise ** Dollar index up at 108.96 ** Brent crude futures down 0.1% at $95.5 per barrel ** Ten-year U.S. note yield at 3.2%, India 10-yr bond yield at 7.19% ** SGX Nifty nearest-month futures down 0.2% at 17,472 ** As per NSDL data, foreign investors bought a net $257.7mln worth of Indian shares on Aug. 29

** NSDL data shows foreign investors sold a net $85.4mln worth of Indian bonds on Aug. 29 (Reporting by Nimesh Vora; Editing by Neha Arora)

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