The Indian rupee is expected to struggle this Friday due to the rising dollar and the Federal Reserve’s optimistic interest rate forecasts.
Non-deliverable futures indicate that the rupee will open at 83.55-56 to the US dollar, up from 83.5425 in the previous session.
The rupee was within sight of an all-time low of 83.5750 which was largely avoided thanks to the intervention of the Reserve Bank of India, both in the non-deliverable futures (NDF) and spot markets.
“Whether the RBI will allow a new higher band (for the dollar/rupee), that is what is in play at the moment,” said a forex trader at a bank.
“It is not relevant at this stage to discuss whether or not it is appropriate (to allow the rupee to weaken in the context of overall dollar strength). Just play on the price action.
The dollar index returned to the 105 mark, despite the weakness of the producer price index (PPI) in the United States and the increase in unemployment benefit claims. U.S. producer prices fell unexpectedly in May, indicating that price pressures were easing.
The drop came after data showed U.S. consumer prices rose at a slower pace than expected.
Both the PPI and CPI inflation measures have elements that are used to calculate monthly PCE inflation, ANZ Bank said in a note.
“Our basic calculations estimate that the May core PCE index rose 0.1% month-on-month. A rate of 0.1% m/m would leave the annual measure of May core PCE inflation at 2.56% year-on-year, down from 2.75% in April.”
Core PCE inflation is the Fed’s preferred measure.
Fed members continue to take a cautious stance on rate cuts, which has supported the dollar. The median of the Fed’s dot chart shows just one rate cut this year, compared to two expected by economists.
KEY INDICATORS:** One-month rupee not deliverable forward at 83.62; one month onshore forward premium at 7 paise.
** Dollar index at 105.18** Brent down 0.4% to $82.4 a barrel** US ten-year bond yield at 4.27%.
** According to NSDL data, foreign investors purchased $81.3 million worth of Indian stocks on June 12.
** According to NSDL data, foreign investors bought $250.3 million worth of Indian bonds on June 12.
