Rupee contends with Fed rate hike possibility, favourable momentum at open
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The Indian rupee may open largely unchanged or slightly higher to the U.S. dollar on Monday, amid positive momentum from last week and data that boosted chances that the U.S. Federal Reserve may hike rates at its next meeting.
Non-deliverable forwards indicate rupee will open at around 81.84-81.88 to the dollar, compared with 81.8850 in previous session.
Rupee is on a three-week winning run, helped by foreign equity inflows and speculative positions, according to traders. It was the first time in two months that it has managed a weekly close of above 82.
"U.S. jobs has helped arrest the dollar's slide, but then there will be few buyers (of USD/INR) at least at open, based on rupee's near-term trend," a trader at a private sector bank said.
Odds that the Fed will raise rates by 25 basis points at its May meeting climbed to near 70% on the back of data that showed that hiring by U.S. employers remained robust, pushing the unemployment rate back down to 3.5%. Further, annual wage growth slowed but remained too high to be consistent with Fed's inflation target.
"The labor market remains tight and combined with our expectation for a 0.39% month-on-month increase in core CPI (consumer price index), we continue to expect the Fed to deliver 25bp at the May meeting," Morgan Stanley said in a note.
The U.S. inflation data is due this Wednesday. Economists polled by Reuters expect a 0.3% month-on-month increase in the CPI and a 0.4% rise in core CPI.
U.S. yields rose, with the 2-year yield now at 3.96%, and the dollar recovered against its major peers. Risk appetite has held up well to the increased chances of another Fed rate hike.
U.S. equity futures were a tad up to begin the week and Asian equities were mostly higher.
KEY INDICATORS: ** One-month non-deliverable rupee forward at 81.98; onshore one-month forward premium at 13 paisa ** USD/INR NSE April futures settled on Thursday at 81.99 ** USD/INR April forward premium at 7.25 paisa ** Dollar index up at 102.16 ** Brent crude futures at $85.1 per barrel ** Ten-year U.S. note yield at 3.38% ** SGX Nifty nearest-month futures little changed at 17,708 ** As per NSDL data, foreign investors bought a net $100.1mln worth of Indian shares on Apr. 5
** NSDL data shows foreign investors sold a net $138.4mln worth of Indian bonds on Apr. 5
