Rupee likely to uphold weak bias before US inflation test
The Indian rupee is likely to open marginally weaker on Tuesday and maintain its downward bias ahead of U.S. inflation data, which will offer clues on the impact of tariffs on prices and signal how far the Federal Reserve may cut rates this year.
The 1-month non-deliverable forward indicated the rupee will open in the 87.68-87.70 range versus the U.S. dollar, compared with the close of 87.66 on Monday.
Having come close to breaching its all-time low of 87.95 last Tuesday, the rupee has since traded mostly in a narrow range, with any attempts at a meaningful recovery capped by persistent dollar demand from corporates and custodial clients.
On Tuesday, the currency briefly inched past 87.50 before slipping back.
Right now, "it’s hard to shake off" the bearish bias on the rupee, and the path of least resistance is "definitely" on the downside, a currency trader at a bank said.
The problem for the rupee heading into the U.S. inflation data is that "it’s a lopsided setup", he said. Soft inflation numbers won’t move the needle much, while an upward surprise "will hit hard", said a trader at a foreign bank.
The data is expected to show core U.S. inflation to have risen 0.3% in July, pushing the annual rate higher to 3%. The dollar index was largely unchanged at near 98.50, and Asian currencies were mixed on Tuesday.
The July report will be scrutinised for the impact of tariffs on goods prices and whether higher tariffs are having a broader impact on prices, ANZ Bank said in a note, while pointing out that the June data had evidence that tariffs boosted prices in some categories.
In the sessions before the data, investors have become more confident that the Fed will cut rates next month and at least once more this year, helped by a weak U.S. jobs report.
KEY INDICATORS:
** One-month non-deliverable rupee forward at 87.82; onshore one-month forward premium at 12 paisa
** Dollar index down at 98.47
** Brent crude futures up 0.1% at $66.7 per barrel
** Ten-year U.S. note yield at 4.28%
** As per NSDL data, foreign investors bought a net $322.6 million worth of Indian shares on Aug. 8
** NSDL data shows foreign investors bought a net $9.3 million worth of Indian bonds on Aug. 8
