Rupee to climb near 82/$ on bets Fed will end rate hikes

The Indian rupee is poised to rise on Thursday on expectations that cooling inflation in the United States will allow the Federal Reserve to pause interest rate hikes soon. Non-deliverable forwards indicate the rupee will open at around 82-82.05 to the U.S. dollar compared with 82.2475 in the previous session. The local currency has now almost recouped all the losses it suffered last week.

“Having talked of an upside breakout (for USD/INR) last week, this has been quite a turnaround,” a fx trader said. “We are now back to discussing whether the 81.70-81.80 is the floor. “The Reserve Bank of India has likely been buying dollars at around the 81.70-81.80 level through public sector banks, prompting interbank to reckon that USD/INR will not fall below that level.

The dollar index tumbled to their lowest in more than a year and U.S. yields dropped after data showed that U.S. inflation slowed at a faster-than-expected pace. U.S. consumer prices registered their smallest annual increase in more than two years, with headline CPI rising 0.2% last month compared to 0.3% expected. Core CPI increased 0.2% in the month, the first time in six months that it did not post a monthly increase of at least 0.4%.

The larger-than-expected slowdown in the U.S. inflation fuelled expectations that the U.S. Federal Reserve is close to halting rate hikes. “The Federal Reserve seems intent on pushing ahead with a July rate hike, but the need for additional tightening thereafter is questionable,” ING Bank said in a note.

Futures show that investors do not see the Fed hiking rates after July. Asian currencies rallied with the Korean won, the Indonesian rupiah and the Malaysian ringgit up 0.7% to 1.1%. Asian shares rose and U.S. equity futures added to the overnight advance.