Rupee may edge lower ahead of key U.S. inflation data

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The rupee is likely to open at around 81.62-81.66 to the dollar, compared to 81.5750 on Wednesday.

The rupee rose 1.4% over the previous three sessions, leading to a nearby momentum indicator indicating that the currency may be overbought.

With the RSI (relative strength indicator) on USD/INR close to the 30 level and taking into account the key US data due, the rupee is likely to take a breather, said a trader in ‘a bank based in Mumbai.

An RSI reading below 30 and above 70 is an indicator that a security is oversold or overbought, respectively.

Core consumer inflation in the United States likely eased to 6.5% year-on-year last month, from 7.1% in November, according to economists polled by Reuters. On a month-on-month basis, prices are forecast to have remained the same.

The last two inflation readings surprised on the negative side, allowing investors to abandon the dollar and take riskier bets.

Another such surprise will reinforce expectations that the Federal Reserve is close to ending its rate hike cycle.

Futures are pricing in a high probability of a maximum of two 25 basis point rate hikes, followed by a modest rate cut later in the year.

Inflation data is all the more critical as market expectations run counter to Fed policymakers’ indications that they will cut rates only in 2024.

“Although the market priced in a smaller 25 bps hike at the Fed’s February 1 meeting, Fed officials kept the door open to a 50 bps hike should the inflation would surprise,” DBS Group Research said in a note.


** One-month non-forward rupee at 81.74; one month advance onshore at 11.75 paisa

** January USD/INR NSE futures settled on Wednesday at 81.7075

** USD/INR January forward premium at 6.0 paisa

** Dollar index at 103.04

** Brent crude futures rose 0.3% to $82.9 a barrel

** Ten-year US note yield at 3.53%

** Next-month SGX Nifty futures were up 0.3% at 18,004

** According to NSDL data, foreign investors sold a net worth of $222 million worth of Indian stocks on 10 January.

** NSDL data shows foreign investors bought Indian bonds worth a net $16.4 million on 10 January.

(Reporting by Nimesh Vora; Editing by Savio D’Souza)

By Nimesh Vora

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