Rupee expected to remain steady ahead of Fed decision

The Indian rupee is expected to open nearly flat on Tuesday, with traders expecting the currency to see largely rangebound price action ahead of the US Federal Reserve's policy decision this week.

The 1-month non-deliverable forward indicated that the rupee INR=IN will open at 83.87-83.88 to the US dollar, little changed from its Monday's close of 83.8875.

While Asian currencies have been lifted by heightened odds of a deeper rate cut by the Fed on Wednesday, the rupee has diverged from its peers, pinned down by persistent dollar demand from local importers and likely absorption of inflows by the Reserve Bank of India, traders said.

State-run banks have been "present on bid (on USD/INR) around 83.85 levels", a trader at a foreign bank said.

The dollar bids could be related to client flows but the continued rise in Reserve Bank of India's foreign exchange reserves also signals that the central bank has been absorbing dollars, the trader added.

India's foreign exchange reserves rose to a record high of $689.2 billion as of Sept. 6, according to central bank data.

The dollar index was at 100.6 after declining 0.4 per cent on Monday, as chances of a 50-basis point Fed rate cut rose to 67 per cent, up from 50 per cent on Friday, according to CME's FedWatch tool.

U.S. bond yields were lower, while most Asian currencies rose with the Korean won up 0.8 per cent and leading gains.

"The U.S. retail sales numbers out later today will likely be significant, and may perhaps help to settle the ongoing debate about whether the Fed may do 25 bps or 50 bps cut," MUFG Bank said in a note.