The Indian rupee will be helped Friday by falling U.S. Treasury yields on indications the U.S. labor market is cooling, while facing dollar outflows spurred by concerns over the election results.
Non-deliverable futures indicate that the rupee will open at 83.48-83.50 to the US dollar, up from 83.5025 in the previous session.
Concerns over the results of India’s election, scheduled for June 4, have prompted foreigners to pull their money out of stocks, pushing the benchmark Nifty 50 index to a three-week low. Foreigners have withdrawn $2 billion from Indian stocks so far in May.
They withdrew more than $800 million on Thursday, according to provisional data provided by the stock exchanges, because they fear that Prime Minister Narendra Modi’s party will not achieve the landslide victory predicted by opinion polls.
The rupee “somehow” has not felt the impact of this election uncertainty, which “can largely be attributed” to the way the Reserve Bank of India has managed the currency, a forex trader said of a bank.
“We will likely spend more time near 83.50, with an underlying upward bias (for USD/INR).”
U.S. Treasury yields fell Thursday as initial claims for unemployment benefits rose more than expected. That follows data that showed nonfarm payrolls rose the least in six months, tentative signs that the labor market may finally be softening.
While one should not read too much into one set of data, upcoming data will be watched very closely for further evidence that jobs market dynamics may be slowing, ANZ Bank said in a note.
Meanwhile, investors are watching key US inflation data due next Wednesday. There is “considerable” uncertainty about the direction inflation will take in the coming months, Mary Daly, president of the San Francisco Fed, said Thursday, while adding that she remained convinced that price pressures continued to calm down.
KEY INDICATORS:
** One-month non-deliverable rupee forward exchange rate at 83.56; one-month forward premium in the domestic market at 8 paisa.
** Dollar index at 105.30
** Brent up 0.4% to $84.2 per barrel
** Ten-year US bond yield at 4.46%.
** According to NSDL data, foreign investors sold $639 million worth of Indian stocks on May 8.
** According to NSDL data, foreign investors sold $63.8 million worth of Indian bonds on May 8 (reporting by Nimesh Vora; editing by Savio D’Souza).
