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Rupee awaits key US inflation data, bias on upside
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The Indian rupee is expected to have a quiet day on Thursday, as traders await a U.S. inflation reading that will be important in guiding expectations on when the Federal Reserve will cut interest rates.
Non-deliverable forwards indicate the rupee will open marginally higher to the U.S. dollar from 82.9225 in the previous session. The rupee's intraday range in each of the last three sessions has been less than six paisa.
It "will again be a nothing kind of a day without any direction", a FX trader at a bank said.
While the Reserve Bank of India "has made it abundantly obvious" that it does not want rupee to appreciate much, the only "prevalent" trade is to sell USD/INR on upticks, he said.
The central bank has likely been mopping up inflows over the last few days, particularly late in the session, according to traders. Volumes in the last few minutes have been much higher than usual.
Asian currencies were mixed while the dollar index was little changed in the lead up to the U.S. core personal consumption expenditures inflation print. The data will draw extra interest following the higher U.S. January consumer inflation reading.
Morgan Stanley is forecasting core PCE inflation for January at 0.43% month-on-month against 0.17% in December and headline at 0.36% versus 0.17%.
"A data release in line with our forecast would put the 3-month annualized pace in core PCE at 2.7% in January after 1.5% in Dec-23," it said in a note.
"The acceleration is consistent with our expectation of a bumpy inflation path ahead, which should make the Fed delay a first cut to June."
Investors have already fully priced out a Fed rate cut in March and see only a small possibility of a reduction in May. Odds of a June rate cut are at near 50%.
KEY INDICATORS: ** One-month non-deliverable rupee forward at 82.99
** Dollar index at 103.90 ** Brent crude futures at $83.62 ** Ten-year U.S. note yield at 4.28% ** As per NSDL data, foreign investors bought $284 million of Indian shares on Feb. 27
** NSDL data shows foreign investors bought $142 million of Indian bonds on Feb. 27
