Rupee`s upside momentum faces US inflation, RBI test
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The Indian rupee is expected to open largely unchanged on Tuesday, as eye U.S. inflation data for cues on when the Federal Reserve will kick off interest rate cuts.
Non-deliverable forwards indicate rupee will open mostly unchanged from its previous close of 82.7575.
The local currency had climbed to 82.64 on Monday, the highest in more than six months, prompting the Reserve Bank of India to intervene, according to bankers.
"It would be fair to say that the mini breakdown (on USD/INR) was not expected. The next question is to how much further will the RBI allow it to stretch," a forex trader at a bank said.
"U.S. inflation data is always important. However, it is RBI that is way more important (from the USD/INR point of view)."
The February U.S. inflation data, due later in the day, will hold cues on the stickiness of prices. The January inflation print was higher than expected, fuelling concerns that inflation was proving stickier.
Following the report, expectations around how many times the U.S. Federal Reserve will cut rates this year had moderated. Ahead of the February data, investors are pricing in total rate cuts of 90 basis points in 2024.
U.S. Treasury yields rose on Monday and the dollar index inched up.
BofA Securities forecast that U.S. headline inflation accelerated to 0.4% while core decelerated to 0.3%. This would result in year-on-year headline inflation remaining at 3.1% and a two-tenth decline in core inflation to 3.7%, it said.
"A report in line with our expectations would keep the Fed on track to begin cutting rates at its June meeting," it said.
Meanwhile, India's retail inflation is forecast to have inched down to a four-month low of 5.02% in February, according to a Reuters poll.
KEY INDICATORS:
** One-month non-deliverable rupee forward at 82.83; onshore one-month forward premium at 7.75 paisa
** Dollar index up at 102.81
** Brent crude futures up 0.3% at $82.4 per barrel
** Ten-year U.S. note yield at 4.1%
** As per NSDL data, foreign investors bought a net $1,279.2 mln worth of Indian shares on March 10
** NSDL data shows foreign investors bought a net $529.4 mln worth of Indian bonds on March 10
