Rupee to rise tracking further dollar losses on Fed outlook
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The Indian rupee is expected to open higher on Friday as the U.S. dollar slid even further on bets that the Federal Reserve is near halting its rate hike cycle.
Non-deliverable forwards indicate rupee will open at around 82 to the U.S. dollar compared with 82.0725 in the previous session.
The rupee on Thursday managed to strengthen past 82, but was unable to sustain on forward dollar demand from importers, some traders said. Two of them said it was possible that the Reserve Bank of India (RBI) was on the bid side on USD/INR.
It will "not surprise anybody if the RBI bought dollars yesterday", a forex dealer at a bank said, adding that he was betting that the currency would hold at 82.
The dollar's decline following the lower-than-expected U.S. June inflation data on Wednesday showed no signs of pausing. The dollar index was down to 99.64, the lowest since April 2022. The gauge has tumbled 2.5% this week.
The moves witnessed across assets on Wednesday continued overnight. The dollar weakened, U.S. yields dropped, and U.S. equities marched higher. The 2-year U.S. yield is now 50 basis point below last week's high and the S&P 500 Index is at a 15-month high.
U.S. producer price data reinforced expectations that the Federal Reserve is nearly done with the rate hiking cycle.
Coupled with the below-expectations CPI data, "this has helped to cement the disinflation narrative within markets and make them question how many more hikes will be needed," ANZ said in a note.
Investors are now betting that the U.S. Federal Reserve will deliver its last rate hike in the current cycle at the July 25-26 meeting. After that, the Fed is expected to remain on hold til the first quarter of next year.
KEY INDICATORS: ** One-month non-deliverable rupee forward at 82.10; onshore one-month forward premium at 8.5 paisa ** USD/INR NSE July futures settled on Thursday at 82.1225 ** USD/INR July forward premium at 3.75 paisa ** Dollar index down at 99.64 ** Brent crude futures at $81.4 per barrel ** Ten-year U.S. note yield at 3.77%
** As per NSDL data, foreign investors sold a net $40.5mln worth of Indian shares on Jul. 12
** NSDL data shows foreign investors sold a net $48.5mln worth of Indian bonds on Jul. 12
