Rupee seen sharply higher tracking dollar's offshore selloff

A cashier checks Indian rupee notes inside a room at a fuel station in Ahmedabad

By Anushka Trivedi and Nimesh Vora

MUMBAI (Reuters) - The Indian rupee is expected to climb against the U.S. currency on Wednesday, tracking the dollar's selloff in the offshore non-deliverable forward market.

The rupee is tipped to open at around 81.40-81.50, compared with Monday's close of 81.92. Indian financial markets were shut on Tuesday.

The 1-month USD/INR NDF was at around 81.64, down from around 82.10 when OTC markets closed on Monday.

The selloff in the USD/INR in the NDF market was fuelled by the dollar's decline versus its major peers and most emerging market currencies.

The dollar index overnight extended its recent slide to slip to its lowest level since mid-September. Meanwhile, the dollar was down about 1% against the Korean won earlier in the day, while declining 0.3% each versus the Thai baht and the Indonesian rupiah.

The dollar index had dropped from above 113 to below 110 in about a week. The dollar's decline has been attributed by traders to unwinding of long positions and to the U.S. midterm elections.

Investors are betting that the midterm elections would hurt the dollar and bolster equities if the Republican Party wrested control of one or both houses of the U.S. Congress from the Democratic Party, DBS Group Research said in a note.

Early U.S. midterm election results showed several Republican senators easily notching victory. A few analysts view likely Congressional gridlock as a slight negative for the dollar if it limits fiscal spending.

The dollar's downside may be limited, considering that the U.S. inflation data is due on Thursday. A higher-than-expected reading would prompt traders to increase the likelihood of the U.S. Federal Reserve opting for a fifth straight 75 basis points rate hike.

Near-maturity Treasury yields are hovering near year-to-date highs.

KEY INDICATORS: ** One-month non-deliverable rupee forward at 81.64; onshore one-month forward premium at 18.75 paise ** USD/INR NSE November futures settled on Monday at 82.06 ** USD/INR Nov forward premium at 11.0 paise ** Dollar index at 109.60 ** Brent crude futures at $95.3 per barrel ** Ten-year U.S. note yield at 4.15% ** SGX Nifty nearest-month futures up 0.2% at 18,392 ** As per NSDL data, foreign investors bought a net $193.7mln worth of Indian shares on Nov. 4

** NSDL data shows foreign investors sold a net $9.2mln worth of Indian bonds on Nov. 4

(Reporting by Nimesh Vora; Editing by Dhanya Ann Thoppil)