Rupee to drop on hawkish Fed comments; moderating trade deficit, RBI lend support
The Indian rupee is likely weaken at the open on Friday following hawkish comments from Federal Reserve officials, while a continued moderation in the trade deficit and expectations of central bank support are expected to cap losses.
The 1-month non-deliverable forward indicated the rupee will open at 90.36-90.38 versus the U.S. dollar, after settling at 90.2950 on Wednesday.
Indian financial markets were shut on Thursday.
The rupee will have to contend with a dollar supported by data pointing to a resilient U.S. labour market and hawkish comments from Fed policymakers.
Fed officials struck a broadly hawkish, inflation-first tone on Thursday, with most signalling that any rate cuts would be conditional on sustained progress towards the 2% inflation target.
U.S. Treasury yields rose on Thursday, while interest rate futures show markets are now pricing in the first Fed rate cut only in June 2026. The dollar index rose to 99.30.
The strength in the dollar is likely to push USD/INR past the 90.30 resistance, and the key question is how the Reserve Bank of India responds, a currency trader at a bank said.
"The market expects the central bank to lean against a move beyond those levels,” a trader said.
Meanwhile, India's merchandise trade deficit for December stood at $25.04 billion, below a Reuters poll estimate of $27 billion and only slightly wider than November’s $24.53 billion, data released on Thursday showed.
Economists at HSBC noted that the data pointed to a drop in gold imports and a normalisation in the trade deficit after October’s more than $40 billion shock.
"With these numbers, the current account deficit for 4Q25 is likely to settle in the about 2.1% of GDP ballpark," HSBC said in a note.
India's current account deficit remains low by historical standards. The problem instead is capital inflows, which have been weak, the bank added.
KEY INDICATORS:** Brent crude futures down 0.2% at $63.6 per barrel
** Ten-year U.S. note yield at 4.17%
** As per NSDL data, foreign investors sold a net $47.6 million worth of Indian shares on January 13
** NSDL data shows foreign investors sold a net $575.6 million worth of Indian bonds on January 13
