Rupee likely to strengthen on cooler-than-expected US inflation
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The Indian rupee was expected to firm on Thursday, after U.S. inflation softened more than expected and raised hopes that the Federal Reserve was near the end of its hiking cycle.
The non-deliverable forwards indicate the rupee will open at around 81.92-81.96 to the U.S. dollar compared with 82.0775 in the previous session.
U.S. Consumer Price Index (CPI) climbed 0.1% last month, below economists' expectations of a 0.2% gain, and down from a 0.4% increase in February. On a year-on-year basis, the CPI rose 5.0%, its smallest such gain since May 2021.
However, core CPI remained elevated, which analysts warned could be a cause for concern.
The dollar index fell 0.4% and U.S. 2-year bond yield slipped below 4% as the inflation print was followed by minutes from the Fed's March meeting which revealed concern among several members regarding the regional bank liquidity crisis.
The expectations of a 25 basis point (bps) hike from the Fed at the May meeting were still near 71%, with a peak rate of about 5.0% and cuts beginning in the second-half of the year.
"It is probably reasonable to factor in some recession worries and Fed cuts to an extent, but short of a rapid deterioration in data, it is difficult to see the Fed cutting 200bps by end-2024," wrote DBS analysts in a note.
Most Asian currencies rose, as the Thai baht and the South Korean won firmed. Equities in the region were broadly lower, tracking Wall Street's weak finish overnight, with Hong Kong shares leading losses.
Meanwhile, inflation in India decelerated too, as softer food prices and lower base effect helped March CPI to come in at 5.66%, down from 6.44% in the previous month and lower than a Reuters poll forecast of 5.80%.
This comes after the Reserve Bank of India unexpectedly held rates steady last week.
KEY INDICATORS:
** One-month non-deliverable rupee forward at 82.05; onshore one-month forward premium at 12 paise
** USD/INR NSE April futures settled on Wednesday at 82.1425
** USD/INR April forward premium is 3.5 paise
** Dollar index at 101.49
** Brent crude futures down 0.1% at $87.2 per barrel
** Ten-year U.S. note yield at 3.41%
** SGX Nifty nearest-month futures down 0.1% at 17,852
** As per NSDL data, foreign investors bought a net $125.5 mln worth of Indian shares on Apr. 11
** NSDL data shows foreign investors sold a net $53.8 mln worth of Indian bonds on Apr. 11
