The Indian rupee will be supported on Thursday by weaker-than-expected US inflation, as projections that the Federal Reserve will cut rates only once this year are expected to weigh.
Non-deliverable futures indicate that the rupee will open at 83.52-83.55 to the US dollar, compared to its previous close of 83.5450.
“The relief from US inflation is not translating into much (for the rupee), which normally means (the dollar/rupee pair) wants to push higher,” said a forex trader at a bank.
“And this upward push must be faced by the RBI.”
The Reserve Bank of India intervened in the non-deliverable futures (NDF) market and the local spot market on Wednesday to prevent the local currency from falling to a historic low.
U.S. Treasury yields and the dollar index fell after U.S. consumer prices remained unchanged in May, following a 0.3% month-on-month increase in April, and compared with an increase of 0. 1% predicted by economists polled by Reuters.
The decline in yields and the dollar was partially offset after the dot chart indicated the Fed could cut rates just once this year, compared to policymakers’ forecast of three cuts in March.
Additionally, the Fed’s long-term monetary policy estimate increased from 2.5625% to 2.75%.
The yield curve surprised with a median projection of one cut in 2024 instead of the two expected by consensus, Goldman Sachs said in a note.
The market probability of a Fed rate cut in September rose to over 80% after the inflation report, before falling to almost 60% afterward.
The dollar index, which hit its lowest level at 104.25, recovered. The 10-year U.S. Treasury yield moved 7 basis points from its lowest level.
KEY INDICATORS: ** One-month undeliverable rupee forward exchange rate at 83.60; One month forward premium in the domestic market at 7 paise.
** Dollar index up to 104.76 ** Brent down 0.4% to $82.3 a barrel ** US ten-year bond yield at 4.32% ** According to NSDL data, foreign investors purchased Indian stocks worth a net $6.8 million on June 11.
** According to NSDL data, foreign investors sold $299.2 million worth of Indian bonds on June 11 (reporting by Nimesh Vora; editing by Sohini Goswami).
