Indian rupee to resume decline as yuan slides to 7/dollar
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The Indian rupee is expected to decline on Wednesday after the Chinese yuan dropped to its lowest level this year to the U.S. dollar.
Non-deliverable forwards indicate that the rupee will open at around 82.28-82.30 to the U.S. dollar, compared with 82.2050 in the previous session. The currency on Tuesday managed to halt a three-day losing run.
Following the slight relief, the rupee will be back under pressure, a spot trader said. Monday's high (on USD/INR) of nearly 82.40 should provide "good" resistance followed by the 82.50 level, he said.
The offshore yuan, bogged down by the resurgent dollar, dropped below 7 to the dollar for the first time this year. Safe haven demand and resilient U.S. economic data boosted demand for the dollar.
U.S. retail sales rose 0.4% month-on-month in April, with control retail sales up by a robust 0.7%. Industrial production rose 0.5% on-month in April, with manufacturing output up 1.0%.
"Strong retail sales, manufacturing data, and labour demand will make it difficult to achieve inflation targets indicating the Federal Reserve may have more work to come," ANZ said in a note to clients.
U.S. yields rose overnight with the two-year reaching 4.12% at one point. U.S. equities dropped and the dollar inched up against its major peers.
Fed officials continued to push back against rate cuts that investors have priced in for later this year.
Chicago Fed President Austan Goolsbee said it was "far too premature to be talking about rate cuts".
Meanwhile, Cleveland Fed President Loretta Mester said rates were not yet at a point where the central bank could hold steady, given stubborn inflation.
KEY INDICATORS: ** One-month non-deliverable rupee forward at 82.38; onshore one-month forward premium at 10.5 paise ** USD/INR NSE May futures settled on Tuesday at 82.2475 ** USD/INR May forward premium at 3.75 paise ** Dollar index at 102.54 ** Brent crude futures little changed at $74.9 per barrel ** Ten-year U.S. note yield at 3.53% ** SGX Nifty nearest-month futures down 0.2% at 18,286 ** As per NSDL data, foreign investors bought a net $228.5mln worth of Indian shares on May. 15
** NSDL data shows foreign investors sold a net $43.2mln worth of Indian bonds on May. 15
