Rupee poised to open higher on oil plunge, fall in dollar index

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Brent crude futures fell 5.2% overnight, adding to the previous day’s 4.4% decline. Oil prices posted their biggest percentage loss in the first two trading days of any year for more than three decades on worries about demand from China and the global economic outlook.

Weaker oil prices will ease concerns about a higher current account deficit, with analysts already forecasting a picture of less than 3% of GDP in the current year, said Anil Bhansali, head of treasury at the Consultants of Finrex Treasury.

“The range for the rupee continues to be between 82.50 and 83.00.”

Citigroup cut its projection for India’s CAD to 2.9% of gross domestic product (GDP) for the current fiscal year, citing growth in the country’s services exports and a forecast of lower oil.

The dollar index fell overnight following the minutes of the US Federal Reserve’s December policy meeting.

Most Fed officials emphasized the need to maintain flexibility and choice when policy moves to a more restrictive stance and none of the policy makers expected a rate cut this the year.

In addition, the minutes pointed out that the unjustified reduction in financial conditions will complicate the Fed’s effort to restore price stability.

“Policymakers must err on the side of being too restrictive. As long as financial conditions are misaligned with the Fed’s goals, expect additional tightening,” Morgan Stanley said in a note.

The minutes had no impact on expectations for the Fed’s February meeting. The futures show a probability of 67% that the US central bank rates will rise by 25 bps smaller.

Meanwhile, a survey by the Institute for Supply Management (ISM) showed a measure of prices paid by manufacturers fell to the lowest level since February 2016.

US 10-year Treasury yields fell about 9 basis points.

KEY INDICATORS: ** One-month rupee not forward at 82.83; One month land forward premium at 12 paise ** USD/INR NSE January futures settled on Wednesday at 82.9225 ** USD/INR January forward premium at 9.5 paise ** Dollar index down to 104.12 ** Brent crude futures at $78.7 a barrel * * Ten-year US note yield 3.71% ** Futures of the nearest month SGX Nifty rose 0.2% at 18,148 ** According to NSDL data, foreign investors sold a net worth of $31 million of Indian shares on January 3 ** NSDL data shows investors foreigners sold Indian bonds worth a net $100.6 million on January 3

(Reporting by Anushka Trivedi and Nimesh Vora; Editing by Rashmi Aich)

By Anushka Trivedi and Nimesh Vora

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