The Indian rupee is expected to open weaker on Monday following U.S. inflation data that suggests the Federal Reserve may not opt for a larger rate cut this month. Asian currencies also struggle as market eyes upcoming U.S. jobs data.
Bollywood Fever: The Indian rupee is anticipated to open weaker on Monday, influenced by recent U.S. inflation data that dampened hopes for a larger rate cut by the Federal Reserve at its upcoming meeting. The 1-month non-deliverable forward indicates that the rupee will open at 83.90 against the U.S. dollar, slightly down from 83.8625 in the previous session.
Last week, the rupee traded within the 83.80 to 83.96 range, bolstered by likely equity inflows, possible central bank intervention, and dollar payments by importers. A currency trader noted, “I expect a similar range to persist this week, with risks balanced on the upside (for the dollar/rupee pair).” The trader added that the range might expand next week following the release of U.S. jobs data.
Asian Currencies Under Pressure
Asian currencies began the week on a weak note after data indicated that the Federal Reserve might opt for a more conventional 25 basis points rate cut at the September 17-18 meeting. On Friday, data showed that both the headline and core Personal Consumption Expenditures (PCE) index rose by 0.2% month-on-month in August, aligning with market expectations. This followed better-than-expected revisions to U.S. GDP and a slight decline in initial jobless claims.
As a result of this data, investors are now pricing in less than a 1-in-3 chance that the Fed will cut rates by 50 basis points in the upcoming meeting. However, the U.S. August non-farm payrolls data, due this Friday, could shift these expectations. After Federal Reserve Chair Jerome Powell’s comments at Jackson Hole, the U.S. labor market data is seen as critical in determining the size of future rate cuts.
“The Fed has essentially guided that this is where they’re looking most intently and will not tolerate any further weakness,” said Chris Weston, head of research at broker Pepperstone. A weaker-than-expected payrolls number, particularly below 130,000, could prompt the rates market to price in a 50 basis points cut, he added. Economists polled by Reuters expect non-farm payrolls to rise by 165,000.
Key Indicators to Watch:
- One-month non-deliverable rupee forward: Trading at 83.97/83.99.
- Onshore one-month forward premium: 7 paise.
- Dollar index: Currently at 101.67.
- Brent crude futures: Down 0.8%, trading at $76.3 per barrel.
- Ten-year U.S. note yield: At 3.91%.
- Foreign investment in Indian shares: Foreign investors bought a net $1,731.6 million worth of Indian shares on August 29, according to NSDL data.
- Foreign investment in Indian bonds: Foreign investors purchased a net $28.9 million worth of Indian bonds on August 29, as per NSDL data.
As global markets continue to react to U.S. economic data, the Indian rupee and other Asian currencies remain under pressure, with investors keenly watching for further developments, particularly the upcoming U.S. jobs report.
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