Rupee contends with weak Asia, Fed leadership speculation
The Indian rupee at open on Thursday will contend with a slide in Asian peers, U.S. Federal Reserve leadership upheaval, and soft U.S. inflation data that slightly strengthened expectations of a rate cut at the Fed's September meeting.
The 1-month non-deliverable forward indicated that the rupee will open flat-to-slightly weaker versus the U.S. dollar from 85.94 on Wednesday.
The The dollar index whipsawed Thursday, dropping on speculation that President Trump would sack Fed Chair Jerome Powell, before trimming losses after the report was denied. Trump kept up his pressure on the central bank to cut rates.
Trump has been vocal in his frustration with Powell for not cutting rates, which he thinks should be much lower. Trump confirmed that he had floated the idea with Republican lawmakers to fire the Fed chief.
Investors were rattled last week by signals that the White House was paving the way to dismiss Powell — a move that would likely spark a sharp market backlash.
ING Bank said in a note that the firing of Powell remains a low-probability event. However, Wednesday's market action showed how investors are likely to react if it does materialize - short-term U.S. yields would fall, the dollar would weaken, equities would decline, credit spreads would widen, and long-dated Treasury yields would rise, ING added.
ASIA FX WEAK, SOFT US INFLATION
U.S. producer prices index came in unchanged for June, compared with expectations for a 0.2% rise, while core or underlying prices were flat. The miss pushed up market odds of a Fed rate cut in September.
Despite that, Asian currencies were mostly weaker on Thursday, pressured by the ongoing turmoil surrounding Fed leadership.
The decline in Asian peers "may hurt the rupee at open", said a currency trader at a bank, adding that the unit remains well-supported around the 86 level based on recent price action.
KEY INDICATORS:
** One-month non-deliverable rupee forward at 86.06; onshore one-month forward premium at 9.50 paise
** Dollar index up at 98.51
** Brent crude futures up 0.4% at $68.8 per barrel
** Ten-year U.S. note yield at 4.48%
** As per NSDL data, foreign investors sold a net $20.2 million worth of Indian shares on July 15
** NSDL data shows foreign investors bought a net $17.8mln worth of Indian bonds on July 15
