Rupee set to rise on US inflation-spurred dollar weakness, outflow reprieve
The Indian rupee is expected to open higher on Wednesday, aided by a weaker dollar following soft U.S. inflation data and on expectations that the one-off outflow seen in the prior session may not repeat.
The 1-month non-deliverable forward indicated that the rupee will open at 85.00-85.04 to the U.S. dollar, compared to 85.33 in the previous session.
The Indian rupee saw an intraday reversal on Tuesday. After initially strengthening to almost 84.60, it weakened to nearly 85.50. Bankers attributed the move to dollar purchases by a large state-run bank, likely tied to a sizeable one-off outflow, followed by demand from foreign banks.
The reversal was flow-driven, which is unlikely to be repeated, a currency trader at a Mumbai-based bank said.
With the dollar broadly on the backfoot, the rupee should be able to sustain its opening upmove, he said, adding that "through the ongoing volatility", the bias on the Indian currency remains on the upside.
DOLLAR STRUGGLES
On Tuesday, the dollar reversed a part of its previous day's rally after U.S. inflation data showed a smaller-than-expected rise.
The U.S. Consumer Price Index (CPI) for April rose by 0.2%, below the 0.3% forecast. The softer inflation reading could pave the way for the Federal Reserve to cut rates, particularly in light of recent trade agreements that the U.S. has struck.
The de-escalation of trade tensions.. makes it more likely that inflation will be less of an issue for the Fed and the scope for rate cuts remains, ING Bank said in a note.
"We had been looking for the Fed to wait until September before cutting and that still holds."
KEY INDICATORS:
**India's retail inflation slowed to a near 6-year low of 3.16% in April from 3.34% in March, increasing the odds that the Reserve Bank of India will cut rates next month
** One-month non-deliverable rupee forward at 85.20; onshore one-month forward premium at 18 paise
** Dollar index down at 100.92
** Brent crude futures down 0.7% at $66.2 per barrel
** Ten-year U.S. note yield at 4.47%
** As per NSDL data, foreign investors sold a net $278.8 million worth of Indian shares on May 12
** NSDL data shows foreign investors sold a net $13.4 million worth of Indian bonds on May 9
