Rupee under pressure on anticipated outflow, possible Fed rate cut delay
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The Indian rupee is likely to struggle on Wednesday after sticky U.S. inflation suggested that the Federal Reserve will wait longer to cut interest rates. An anticipated dollar outflow is further expected to dampen demand for the local currency.
Non-deliverable forwards indicate the rupee will open at around 82.80 to the U.S. dollar, compared with 82.7675 in the previous session.
The U.S. February core consumer price index (CPI) rose 0.4% month-on-month, topping expectations. The headline CPI increased at the same pace.
"Apart from U.S. inflation, I can think of two more reasons for a push higher (on USD/INR)," a foreign exchange trader at a bank said.
"The RBI (Reserve Bank of India) has put out a message that for now they will not allow further fall and you have a decent sized outflow lined up."
British American Tobacco is set to offload a part of its stake in ITC, which is estimated to be worth nearly $2 billion.
Meanwhile, the RBI has likely intervened to cap the rupee's rally in the last few sessions.
"When this passes through, I would not be surprised if we see at least a temporary move to 82.90 and possibly higher," the trader said.
Asian currencies struggled in the wake of a move higher in U.S. Treasury yields, following the higher inflation data.
The two-year U.S. yield climbed to 4.60%, with investors further reducing the possibility of a Fed rate cut at the May meeting. The odds of a rate cut at next week's meeting are almost nil.
"The U.S. data will add more support to those who think that the Fed can/will wait for longer before cutting rates," Kit Juckes, chief FX strategist at Societe Generale, said in a note.
India's retail inflation in February, meanwhile, rose at a marginally faster-than-expected pace.
KEY INDICATORS: ** One-month non-deliverable rupee forward at 82.87; onshore one-month forward premium at 7.25 paise ** Dollar index at 102.90 ** Brent crude futures up 0.5% at $82.3 per barrel ** Ten-year U.S. note yield at 4.15%
** As per NSDL data, foreign investors bought a net $477.2 mln worth of Indian shares on March 11
** NSDL data shows foreign investors bought a net $40.9mln worth of Indian bonds on March 11
