MUMBAI: The Indian rupee is likely to open higher on Friday on the back of a decline in the dollar index, after which its direction will be dictated by the central bank’s monetary policy review.
The 1-month non-deliverable forward indicated that the rupee will open at 84.68-84.70 to the US dollar, compared with 84.7325 in the previous session.
The rupee’s downtrend has halted over the last two sessions after the currency dropped to an all-time low of 84.7575 on Tuesday.
The pause in foreign equity outflows leading up to the policy decision has helped the local currency to some degree.
The Reserve Bank of India’s policy statement is due at 10:00 a.m. IST.
A majority of economists expect the central bank to make no changes to the policy rate amid high inflation and rupee weakness.
“After a long time, we have a policy that will actually matter (for the rupee),” a currency trader at a bank said.
“I think overall the interbank is less sure (than economists) that RBI will keep rates on hold. If the RBI does cut, you will have a notable up move on dollar/rupee.”
Indian rupee slips to record low
There was a lot more certainty on what the RBI would do before the weak India September quarter GDP data.
The slump in the GDP growth rate has led to economists at Nomura and ANZ expecting that the RBI will cut rates.
US jobs data on tap
The dollar index on Thursday dropped below the 106 handle, awaiting the US payrolls data due on Friday.
The November jobs report, along with the US inflation data next week, will be key to gauging whether the Federal Reserve will cut rates at the December 17-18 meeting.
Markets are pricing in 70% odds of a rate cut right now. Economists polled by Reuters expect US payrolls to rise by 200,000 with the unemployment rate pegged at 4.1%.
“We think it would take a big upside surprise on payrolls, a fall in the unemployment rate (below 4.1%) and an upside surprise on the November inflation report for the Fed not to deliver a cut this month,” ANZ said in a note.
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