Rupee seen higher after dollar's post U.S. inflation rally fades
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The Indian rupee is tipped to strengthen versus the U.S. currency on Friday after the dollar's rally following higher-than-expected U.S. inflation data proved short lived.
The rupee is expected at around 82.20 in early trading, up from 82.3450 in the previous session.
The dollar index dropped in Asia trading to 112.22 after having reached almost 114 immediately into the data.
U.S headline consumer prices increased more than expected in September fuelling underlying inflation pressures, making it almost certain that the U.S. Federal Reserve will deliver another 75-basis-point rate increase at next month's policy meeting.
Further, the odds of an additional 75 bps rate hike in December climbed to 2-in-3, according to the CME FedWatch Tool. This probability was less than 10% a week back.
More sustained core U.S. services pressure could see the Fed having to contemplate another 75 bps hike in December against our current base case of 50 bps, Morgan Stanley said in a note.
The dollar advanced against its major peers soon after the data, while U.S. equity futures plunged and Treasury yields rose.
However, U.S. equity futures and the dollar witnessed an intraday turnaround while Treasury yield came off highs. Analysts attributed the surprising turnaround to position adjustments and the possibility that decline in U.S. shares was overdone.
The USD/INR 1-month non-deliverable forward jumped to 83 initially, but similar to the dollar index, retreated to near 82.50.
The rupee will open at near its weekly high of around 82.15-82.17 and it "would not be a surprise" if the initial uptick does not sustain, a trader at a Mumbai-based bank said.
The trader pointed to likely dollar buying interest from importers and to oil prices. Brent crude rose more than 2% on Thursday, inching higher in Asia to $94.70.
KEY INDICATORS: ** One-month non-deliverable rupee forward at 82.50; onshore one-month forward premium at 22.5 paise ** USD/INR NSE October futures settled on Thursday at 82.42 ** USD/INR forward premium for current month at 9.5 paise ** Dollar index down at 112.30 ** Brent crude futures up at $94.7 per barrel ** Ten-year U.S. note yield at 3.92% ** SGX Nifty nearest-month futures up 2.0% at 17,296 ** As per NSDL data, foreign investors sold a net $43.4mln worth of Indian shares on Oct. 12
** NSDL data shows foreign investors bought a net $13.8mln worth of Indian bonds on Oct. 12
