Rupee eyes steady open even as upbeat data drives US yields higher
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The Indian rupee is likely to open largely unchanged on Thursday, with an eye on the rise in U.S. Treasury yields after robust U.S. retail sales data prompted further moderation of bets on aggressive rate cuts by the Federal Reserve.
Non-deliverable forwards indicate the rupee will open at around 83.14-83.15 to the U.S. dollar, barely changed from its previous closing at 83.1375.
Retail sales in the U.S. rose 0.6% from the previous month in December, higher than the 0.4% expected by economists polled by Reuters, signalling the resilience of household spending.
The dollar index climbed to its highest level in a month on Wednesday but was last quoted lower in Asia hours at 103.23.
Meanwhile, the 10-year U.S. Treasury yield touched a peak of 4.12% overnight before retracing slightly as investors reassessed the potential trajectory of rate cuts.
"With the jobs market remaining tight and inflation still above target we continue to take the view that May is the more likely start point for Fed easing versus the market’s pricing of March," ING Bank stated in a note.
Market participants are currently pricing in a 53.8% chance of a rate cut in March, down from 63.1% on Tuesday, according to CME's FedWatch Tool.
The strong U.S. data, coupled with central bank officials pushing back on rate expectations, could "pressure the rupee at the margins," a foreign exchange trader at a private bank said.
Additionally, potential outflows related to equity could be a driver for the rupee, the trader added.
Benchmark Indian equity indexes, the NSE Nifty 50 and the S&P BSE Sensex logged their sharpest percentage drop since June 2022 on Wednesday.
The "83.20-83.22 belt could be a stiff resistance for the dollar-rupee pair," Arnob Biswas, head of foreign exchange research at SMC Global Securities, said.
KEY INDICATORS:
** One-month non-deliverable rupee forward at 83.23; onshore one-month forward premium at 9.25 paisa
** Dollar index at 103.25
** Brent crude futures up 0.1% at $77.9 per barrel
** Ten-year U.S. note yield at 4.09%
** As per NSDL data, foreign investors bought a net $142.4 mln worth of Indian shares on Jan. 16
** NSDL data shows foreign investors bought a net $285.1 mln worth of Indian bonds on Jan. 16
