Key points:
- Indian rupee expected to open weaker after US business activity rise.
- Dollar index climbs to 105.84, impacting rupee performance.
The Indian rupee is likely to face pressure at the start of the week following a rise in U.S. business activity to a two-year high, which has bolstered demand for the dollar.
Non-deliverable forwards indicate the rupee (USDINR) will open slightly weaker against the U.S. dollar from its previous close of 83.5325. The currency reached an all-time low of 83.6650 last Thursday, largely due to outflows related to Vodafone Group selling its stake in India’s Indus Towers.
Picture: Downside prevails for Rupee as seen on the VT Markets app.
Strong U.S. economic data raises concerns about Fed Rate cuts
See: The dollar strengthens as seen on the VT Markets app.
On Friday, the dollar index (DXY) and U.S. Treasury yields nudged higher. The S&P June flash U.S. Composite PMI Output Index, which tracks manufacturing and services sectors, rose to a 26-month high.
This increase has raised concerns about a potential delay in the Federal Reserve’s rate cut timing. Investors have priced in two interest rate cuts by the Fed this year, a view more optimistic than what policymakers signaled at their last meeting.
Also read: Rupee Under Pressure From Delayed US Rate Cuts
The upcoming U.S. core PCE data, due this Friday, will provide more insights into the timing and extent of these rate cuts. The May core PCE index, the Fed’s preferred inflation gauge, is expected to rise at a muted pace of 0.1% month-on-month.
Rupee forward rates and market indicators
The one-month non-deliverable rupee (INRNDFOR=) forward stands at 83.60, with the onshore one-month forward premium at 7.25 paisa. The dollar index (DXY) is at 105.84, reflecting a strong dollar. Brent crude futures have dipped to $85.12, providing some relief on the import cost front. The ten-year U.S. note yield is at 4.25%, indicating firm yields.
The Indian rupee’s performance will be closely tied to these global indicators. The rise in U.S. business activity and a stronger dollar create a challenging environment for the rupee
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