Relief for rupee with US inflation keeping Fed on track to restart rate cuts
The Indian rupee is poised to find relief at open on Friday after a key U.S. inflation data came in line with expectations, reinforcing bets that the Federal Reserve will restart interest rate cuts next week.
Sustained dollar demand from importers is, however, likely to temper the local currency's advance.
The one-month non-deliverable forward indicated the rupee will open in the 88.36-88.38 range to the U.S. dollar, compared with 88.4425 on Thursday when it hit a lifetime low.
"The U.S. inflation read is helpful for EM currencies overall," a currency trader at a Mumbai-based bank said.
"However, with the rupee having printed a new low yesterday, you have to be very wary to take the other side. When a currency makes lows, the hurdle for reversing direction and trend is very high," a Mumbai-based FX trader said.
The rupee's slide to new lows on Thursday was unexpected after it looked to be in a range around the 88 handle. Relentless dollar buying from importers and likely an outflow, pushed the move and shows little sign of abating, the trader added.
25 BPS FED CUT NEXT WEEK
A measure of U.S. inflation, core CPI, matched expectations, keeping intact the already high odds of a 25-basis-point Fed rate cut next week. Alongside data pointing to softness in the labor market, it left no doubts over the rate cut path, bolstering risk appetite and weighing on the dollar.
"The weakening of the jobs market is now the Fed's priority," ING Bank said in a note, and pointed out that the impact of tariffs was "not particularly evident" in Thursday's report.
Economists have been watching U.S. inflation for evidence that President Donald Trump's tariffs are pushing prices higher.
The Fed last lowered rates in December 2024. With a quarter-point cut fully priced in for next week, investors expect two more reductions this year.
KEY INDICATORS:
** One-month non-deliverable rupee forward at 88.47; onshore one-month forward premium at 12 paise
** Dollar index up at 97.62
** Brent crude futures down 0.7% at $65.9 per barrel
** Ten-year U.S. note yield at 4.03%
** As per NSDL data, foreign investors bought a net $510mln worth of Indian shares on Sept. 10
** NSDL data shows foreign investors sold a net $41mln worth of Indian bonds on Sept. 10
