The Indian rupee is expected to open slightly higher on Wednesday, as the dollar retreats ahead of US inflation data which will provide guidance on the direction of US interest rates.
The one-month non-deliverable futures contract indicates that the rupee will open at 86.58-86.60 per US dollar, up from 86.63 in the previous session, when it hit an all-time low of 86. 6475. The currency has fallen 1.2% this month.
The rupee’s fall from 84 to its current level happened “without any form of correction” and “there is little doubt” that it was very rapid, a bank foreign exchange trader said.
“Yes, India’s fundamentals and (US President-elect Donald) Trump’s situation (threat of tariffs) warrant a weakening of the rupee. However, I have a feeling we are going to see a significant correction very soon .”
The Dollar Index was at 109.24, down almost 1% from the multi-year high reached two days ago. Oil prices, like the dollar, fell, with the barrel of Brent falling back below the 80 dollar mark.
US INFLATION DATA ANTICIPATED
The general consumer price index (CPI) in the United States is expected to have increased by 0.3% month-on-month in December, and the core index by 0.2%, according to a Reuters poll. The headline CPI likely rose 3% year-over-year.
The data comes days after the jobs report prompted traders to lower their expectations for interest rate cuts from the Federal Reserve. Rate futures forecast just one rate cut this year, half the number the Fed predicted last month.
Low U.S. inflation and concerns over Mr. Trump’s planned trade and tax policies have prompted investors to reassess the path of rates.
“This is not the type of report the Fed expected to see at the end of 2024,” ING bank said in a note.
KEY INDICATORS:
** One-month rupee non-deliverable at 86.86; one month onshore forward premium at 26 paisa.
** Dollar Index at 109.24
** Brent at $79.9 per barrel
** Yield on ten-year US bonds: 4.78%.
** According to NSDL data, foreign investors sold $494.7 million worth of Indian stocks on January 13.
** According to NSDL data, foreign investors bought $23.4 million worth of Indian bonds on January 13.
