Rupee to weaken on dollar rally, RBI likely to intervene

MUMBAI, Aug 8 (Reuters) - The Indian rupee is expected to open lower on Tuesday, weighed down by the recovery in the dollar index and a decline in Asian peers.

Non-deliverable forwards indicate rupee will open at around 82.85 to the U.S. dollar, down from 82.7425 on Monday.

The dollar index rose in Asia, and has now recovered a large part of its losses suffered post the U.S. jobs data. Asian currencies were down between 0.2% and 0.6%, with the offshore Chinese yuan slipping to 7.2250 to the dollar.

\“With Asia down, we are back to that level at which interbank will be on the public sector bank watching mode,\” a forex trader at a bank said.

The Reserve Bank of India has repeatedly intervened via public sector banks to prevent the currency from weakening past 82.80-83.00.

\“It does not require saying that the whole of the 82.80-83.00 region is critical. You take out 83 and we will have a round of major stop losses,\” the trader said.

The dollar helped by comments from Fed Governor Michelle Bowman that additional interest rate hikes will likely be needed in order to lower inflation to the U.S. Federal Reserves 2% target.

The U.S. inflation data due Thursday is seen key to the Feds outlook. Economists polled by Reuters expect core consumer price index to rise 0.2% month-on-month and by 4.8% on-year.

\“The Fed is wary of upside risks to elevated inflation given demand for labour remains excessive, and most policy makers think the policy rate will need to be kept restrictive for some time to get inflation back to target,\” ANZ said in a note.

\“Risks appear skewed that the Feds work is not yet done.\”

KEY INDICATORS:

** One-month non-deliverable rupee forward at 82.92; onshore one-month forward premium at 8.25 paisa

** USD/INR NSE August futures settled at 82.7950 on Monday

** USD/INR August forward premium at 5.25 paisa

** Dollar index at 102.34

** Brent crude futures down 0.1% at $85.27 per barrel

** Ten-year U.S. note yield at 4.05%

** As per NSDL data, foreign investors bought a net $8 mln worth of Indian shares on Aug. 4

** NSDL data shows foreign investors bought a net $15.1 mln worth of Indian bonds on Aug. 4

Reporting by Nimesh Vora; Editing by Rashmi Aich

Our Standards: The Thomson Reuters Trust Principles.