MUMBAI: The Indian rupee is poised to recover on Tuesday after weak US services data dented demand for the dollar and prompted a pullback in US yields. Non-deliverable forwards indicate rupee will open at around 82.55 to the US dollar compared with 82.67 in the previous session.
The local currency on Monday had its worst session in just under three months.
“After yesterday’s unexpected session, there will not be much of an appetite for short positions (on USD/INR),” a trader said, adding that the dip in pair at the opening could be bought into.
The rupee has, since February, meandered in a narrow range of 81.60 to 82.80.
Indian rupee to open weak on dollar strength following US jobs report
The Reserve Bank of India has actively intervened on either side, pushing rupee’s volatility below historical levels.
The dollar index was down at 103.90 in Asia, hurt by data that showed that the US services sector expanded at a slower-than-expected pace in May.
The Institute for Supply Management (ISM) said that its non-manufacturing PMI fell to 50.3 last month, barely above the 50 level that separates expansion and contraction.
The ISM services had posted a reading of 51.9 in April and economists polled by Reuters had expected the reading to inch up to 52.2.
“The print will undoubtedly fan expectations that the largest sector of economic activity may finally be responding to Fed tightening,” ANZ said in a note.
Another possibility is that the step down in the ISM services index in recent months reflects a sense of precaution after the recent banking stress and the protracted debt-ceiling negotiations, it said.
The odds of a Federal Reserve rate hike next week softened to 1-in-4.
The 2-year US yield slipped below 4.50%.
Fed officials are now in a blackout period before the June 13-14 meeting.
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