MUMBAI, March 20 (Reuters) - The Indian rupee is expected to strengthen against the dollar on Tuesday as Asian markets attempt to shake off jitters from a banking crisis in the United States and Europe.
The non-deliverable forwards indicate the rupee will open at around 82.50-82.55 to the U.S. currency compared with 82.6350 in the previous session.
Asian equities like Singapore and Australian shares were up over 1%, tracking a rally in U.S. shares overnight and as European banking stocks recovered earlier losses. The dollar index fell to 103.340.
UBS Group’s state-backed takeover of Credit Suisse and funding pledges from the world’s top central banks seemed to quell immediate fears of a contagion.
“Markets remain nervous, but the rapidity of policymakers’ response to the evolving banking sector risks is heartening,” said Alvin Tan, Head of Asia FX Strategy at RBC Capital Markets.
Policymakers from Washington to Europe have asserted that the current turmoil is different than the global financial crisis 15 years ago as banks are better capitalised and funds more easily available.
However, worries that other struggling banks could fail persisted as global central banks may have to keep raising rates to tame inflation - which had triggered the collapse of U.S.-based mid-sized lenders in the first place.
San Francisco-headquartered First Republic Bank shares sank 47% overnight.
U.S. Treasury yields rose as investors weighed the chances of whether the Federal Reserve will skip raising interest rates on Wednesday amid the crisis.
Fed funds futures showed the odds of the central bank holding rates or hiking by 25 basis points (bps) were nearly even, with about 80 bps worth of cuts possible this year.
Before the banking crisis began two weeks ago, markets were expecting a 50 bps hike from this meeting and a peak Fed rate of somewhere around 5.50%.
KEY INDICATORS
** One-month non-deliverable rupee forward at 82.74; onshore one-month forward premium at 20.54 paise
** USD/INR NSE March futures settled on Monday at 82.62
** USD/INR March forward premium is 2.75 paise
** Dollar index at 103.340
** Brent crude futures down 0.7% at $73.3 per barrel
** Ten-year U.S. note yield at 3.5%
** SGX Nifty nearest-month futures up 0.4% at 17,087
** As per NSDL data, foreign investors sold a net $206 mln worth of Indian shares on Mar. 17
** NSDL data shows foreign investors bought a net $86.2 mln worth of Indian bonds on Mar. 17 (Reporting by Anushka Trivedi; Editing by Sohini Goswami)
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