Rupee set to rise after soft US data boosts Fed rate cut odds
The Indian rupee is expected to strengthen at open on Friday, buoyed by widespread U.S. dollar weakness following soft economic data that supported expectations for a Federal Reserve rate cut later this year.
The 1-month non-deliverable forward indicated that the rupee will open at 85.34 to 85.36 to the U.S. dollar compared with 85.55 in the previous session.
The rupee has struggled throughout the week, weighed down by dollar demand for immediate payments, per bankers. A large state-run bank and two major foreign banks have been active dollar buyers.
Despite the respite offered by the India-Pakistan truce, the rupee remains lower on the week through Thursday and has underperformed its Asian peers.
The pull of U.S. dollar demand has shifted the near-term bias on the rupee from positive to neutral, a currency trader at a Mumbai-based bank said.
“At these levels and considering the recent price action, it's hard to hold a high-conviction view,” the trader said.
Meanwhile, India merchandise trade deficit in April stood at $26.42 billion, higher than $20 billion economists had expected.
DOLLAR BACK TO LOSING WAYS
The dollar index dropped on Thursday after a flurry of economic data, which was largely on the weaker side.
U.S. control group retail sales declined 0.2% month-on-month versus expectations of a 0.3% rise.
ANZ Bank pointed out that control group sales, which are used in calculating personal consumption expenditure in GDP and data, indicate a weak start to the current quarter for goods consumption.
U.S. factory production too fell in April, down 0.4% month-on-month and as both durable and non-durable goods fell.
Finally, the U.S. producer price index dropped 0.5% last month after an upwardly revised unchanged reading in March.
The combination of the weak retail sales and an soft PPI increased the likelihood that the Fed will cut rates at least twice this year. U.S. Treasury yields declined on Thursday.
KEY INDICATORS:
** One-month non-deliverable rupee forward at 85.53; onshore one-month forward premium at 16.25 paise
** Dollar index down at 100.64
** Brent crude futures up 0.1% at $64.6 per barrel
** Ten-year U.S. note yield at 4.43%
** As per NSDL data, foreign investors bought a net $109.1 mln worth of Indian shares on May 14
** NSDL data shows foreign investors sold a net $88.8 mln worth of Indian bonds on May 14
