Rupee may extend RBI-spurred rally on fresh boost from softer US inflation
The Indian rupee is set to open higher on Monday, extending its recent rally driven by the Reserve Bank of India's intervention, after softer-than-expected September U.S. inflation reinforced bets for two additional Federal Reserve rate cuts this year.
The 1-month non-deliverable forward indicated the rupee will open in the 87.78-87.82 range versus the U.S. dollar, having settled Friday at 87.8450.
The rupee has rallied about 1% over the past two weeks, supported by the RBI, which initially intervened aggressively on a single day to push the currency notably higher, and has since repeatedly defended the 88 level, leading bankers to believe a soft floor has formed there.
"I would think that the market would (be) wary of testing the RBI's threshold of 88 again, specially on (the) back of the U.S. inflation data," a currency trader at a private bank said.
The trader, however, added that importer hedging appetite remains firm, with any dollar/rupee pullback swiftly attracting buyers.
The pair has repeatedly held the 87.60–87.80 area, highlighting support there.
SOFT U.S. INFLATION BOOSTS ASIA
Asian currencies and equities climbed on Monday after U.S. inflation data for September surprised on the downside for both the headline and core measures. The headline consumer price index rose 0.3% last month against the expected 0.4%.
Cooler U.S. inflation raises hopes of more Fed rate cuts, ING Bank said.
The bank sees a 25-basis-points Fed rate cut this week, with an additional 25 bps move in December and 50 bps of cuts early next year.
The softer inflation print gives the Fed more room to focus on its other mandate of promoting maximum employment, economists said, with recent data have pointing to a cooling U.S. labour market and reinforcing the case for a more accommodative Fed.
KEY INDICATORS:
** One-month non-deliverable rupee forward at 87.92; onshore one-month forward premium at 13.50 paise
** Dollar index down at 98.9
** Brent crude futures up 0.4% at $66.2 per barrel
** Ten-year U.S. note yield at 4.03%
** Per NSDL data, foreign investors sold a net $90.6 million worth of Indian shares on October 23
** NSDL data shows foreign investors sold a net $4.7 million worth of Indian bonds on October 23
