MUMBAI: The Indian rupee is likely to struggle on Wednesday after sticky US inflation suggested that the Federal Reserve will wait longer to cut interest rates.
An anticipated dollar outflow is further expected to dampen demand for the local currency.
Non-deliverable forwards indicate the rupee will open at around 82.80 to the US dollar, compared with 82.7675 in the previous session.
The US February core consumer price index (CPI) rose 0.4% month-on-month, topping expectations. The headline CPI increased at the same pace.
“Apart from US inflation, I can think of two more reasons for a push higher (on USD/INR),” a foreign exchange trader at a bank said.
“The RBI (Reserve Bank of India) has put out a message that for now they will not allow further fall and you have a decent sized outflow lined up.”
British American Tobacco is set to offload a part of its stake in ITC, which is estimated to be worth nearly $2 billion. Meanwhile, the RBI has likely intervened to cap the rupee’s rally in the last few sessions.
Indian rupee’s upside momentum faces US inflation, RBI test
“When this passes through, I would not be surprised if we see at least a temporary move to 82.90 and possibly higher,” the trader said. Asian currencies struggled in the wake of a move higher in US Treasury yields, following the higher inflation data.
The two-year US yield climbed to 4.60%, with investors further reducing the possibility of a Fed rate cut at the May meeting.
The odds of a rate cut at next week’s meeting are almost nil.
“The US data will add more support to those who think that the Fed can/will wait for longer before cutting rates,” Kit Juckes, chief FX strategist at Societe Generale, said in a note.
India’s retail inflation in February, meanwhile, rose at a marginally faster-than-expected pace.
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