The Indian rupee is expected to hold near its all-time low on Friday amid slimmer chances of an aggressive 50 basis points (bps) rate cut by the U.S. Federal Reserve at next month’s meeting.
The one-month non-deliverable forward indicated the rupee will open at 83.94-83.96 to the U.S. dollar compared with 83.9475 on Wednesday and just shy of the lifetime low of 83.9725. Indian financial markets were shut on Thursday.
The rupee has held in a narrow range in recent days and has largely dodged weakening past 84, primarily due to the Reserve Bank of India‘s (RBI) intervention.
If it wasn’t for the RBI’s intervention, “we would be at least” at 84.50, a currency trader at a bank said. The extent of dollar demand we are witnessing from importers is “a lot”, he said.
“The likely path looks higher (for dollar/rupee). When it will happen will be when RBI decides it is time.”
Meanwhile, U.S. Treasury yields climbed on Thursday after robust economic data allayed fears about a hard economic landing and curtailed expectations that the Fed will opt for an aggressive 50 bps at its September meeting.
U.S. retail sales rose 1% last month against a 0.3% increase expected by economists polled by Reuters. Further, fewer Americans filed for unemployment benefits last week, indicating that the labour market was not too weak.
The odds of a 50 bps rate cut at the September meeting are now 1-in-4, having climbed to nearly 50% recently amid worries over the U.S. labour market and the economy.
The totality of U.S. data releases this week support a gradual easing process by the Fed and have provided no evidence for a “chunky” 50 bps cuts, ANZ Bank said in a note.
Asian shares followed their U.S. peers higher, while currencies were mixed on the day.
