Rupee likely to depreciate further on strong dollar, higher US yields
The Indian rupee is poised to experience further depreciation on Monday, extending losses from the previous week, as it follows the upward trend of the dollar index and higher US yields, driven by concerns about inflation in the United States.Projections based on non-deliverable forwards suggest that the rupee will open at approximately 82.20-82.22 against the US dollar, compared to the previous session's rate of 82.1625.On Friday, the dollar index rose by 0.6%, reaching its highest level in a month, while the two-year US yield returned to nearly 4%. The surge in yields, fueled by renewed worries over US inflation, bolstered demand for the dollar.The University of Michigan's survey on Friday revealed a significant increase in consumers' long-term inflation expectations this month, reaching the highest level since 2011. This development dampened the belief that the US Federal Reserve had concluded its tightening cycle, impacting market sentiment.Although the likelihood of an interest rate hike by the Fed at its June meeting has slightly increased, the prevailing consensus remains that the Fed will pause its rate adjustments.Last Friday, Fed Governor Michelle Bowman remarked that if inflation remains high, the central bank will likely need to raise rates further, expressing skepticism that recent data in May has alleviated price pressures.Numerous Fed speakers, including Chair Jerome Powell, are scheduled to make appearances in the coming days, as noted by ANZ."Their assessments of whether recent labor market and inflation data support pausing in June or not will be scrutinized," ANZ stated in a note.Most Asian currencies experienced declines, except for the Thai baht, which received support from the country's election results. The offshore yuan reached its lowest level in over two months.Similar to other Asian foreign exchange markets, the Indian rupee is expected to face challenges; however, it may find support around 82.25, a level USD/INR reached on April 19, according to a spot trader. The trader also highlighted that India's inflation data is "supportive" for the rupee in the medium term.In April, India's annual retail inflation dropped to a 19-month low of 4.7%.(With inputs from Reuters)
Monday, May 15, 2023 at 4:43 am