MUMBAI, March 14 (Reuters) - The Indian rupee is expected to decline against the U.S. dollar on Tuesday, tracking losses in Asian equities and currencies on concerns over the spillover fears after the collapse of the Silicon Valley Bank.
The non-deliverable forwards indicate the rupee will open at around 82.30-82.40 to the dollar compared with 82.1225 in the previous session.
Shares in South Korea, Japan and Australia were all down about 2%, while Asian currencies dropped between 0.2% to 0.4%. Fallout from the collapse of U.S. lenders Silicon Valley Bank and Signature Bank prompted investors to dump risk assets and price in rate cuts by the Federal Reserve this year.
Futures indicate that the Fed rate could peak at around 4.84% in May and cut rates from then on. The Fed policy rate is expected to be below 4% by December, marking a significant shift from the 5.64% peak prior to the collapse of SVB.
"The recent failure of two US banks, SVB and Signature, have understandably triggered a major re-appraisal of Fed tightening prospects," ING Bank said in a note.
"Markets today struggle to price one further 25 bps hike from the Fed. This is a far cry from the 75 to 100 bps of extra tightening seen last week."
Nomura reckoned that the Fed could cut rates by next week and hit the brakes on quantitative tightening with policymakers assessing financial stability risks in the wake of the SVB collapse.
Two-year Treasuries had their biggest rally since 1987 on Monday and the dollar declined against its major peers.
"The dollar weakness is not going to translate to rupee strength now that the underlying environment is anti-risk assets," Srinivas Puni, managing director at QuantArt Market Solutions, said.
"In the midst of these uncertainties, today’s (U.S.) inflation data is very important."
KEY INDICATORS: ** One-month non-deliverable rupee forward at 82.50; onshore one-month forward premium at 18.50 paisa ** USD/INR NSE March futures settled on Monday at 82.2250 ** USD/INR March forward premium at 6.5 paisa ** Dollar index up at 103.84 ** Brent crude futures down 0.8% at $80.1 per barrel ** Ten-year U.S. note yield at 3.56%; it declined about 18 bps on Monday ** SGX Nifty nearest-month futures at 17,252 ** As per NSDL data, foreign investors sold a net $215.1mln worth of Indian shares on Mar. 10
** NSDL data shows foreign investors sold a net $89.6 mln worth of Indian bonds on Mar. 10 (Reporting by Nimesh Vora; Editing by Dhanya Ann Thoppil)
