Rupee likely in narrow range in week with key US data, Fed policy decision
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The Indian rupee is expected to open little changed on Monday and likely to remain in a narrow range through the week as the market focuses on the Federal Reserve's interest rate decision and important U.S. data.
Non-deliverable forwards indicate rupee will open barely changed from 83.34 in the previous session. The local currency was in 83.25-83.45 range last week.
Having dipped to an all-time low, last week "provided proof" that the rupee's range-bound moves, which have "persisted for a long time will persist more," a fx trader at a bank said.
"I think last week's range should more or less hold, and buying (USD/INR) near to low side of the range and selling at the higher would make sense."
The rupee's implied volatility, having jumped when it hit a lifetime low of 83.5750, has pulled back in the wake of last week's price action. The 1-month implied volatility, which rose to more than 3%, is down to 2.2%.
Asian currencies were mostly down to kick off the week, which will most likely see the Fed hold interest rates at the current 5.25-5.50% on Wednesday. Upside surprises on the last U.S. inflation readings and robust activity have meant that a rate cut is not likely till at least September.
The fact that "inflation continues to run too hot for comfort" and that the economy is holding suggests a more cautious take on prospects for interest rate Wednesday’s Fed press conference, ING Bank said in a note.
On the day of the Fed's decision, the U.S. ISM manufacturing data is expected to show the sector remained in expansion in April. The monthly jobs report follows on Friday, which will help investors gauge whether the labour market remains healthy.
KEY INDICATORS: ** One-month non-deliverable rupee forward at 83.42; onshore one-month forward premium at 8 paisa ** Dollar index little changed at 105.96 ** Brent crude futures down 0.9% at $88.68 ** Ten-year U.S. note yield at 4.66% ** As per NSDL data, foreign investors bought a net $3mln worth of Indian shares on Apr. 25
** NSDL data shows foreign investors bought a net $58mln worth of Indian bonds on Apr. 25
