Indian rupee nudges up on RBI intervention; investors eye inflation data

MUMBAI: The Indian rupee ended modestly higher, wedged between anxiety over the Middle East conflict and the impact of persistent central bank intervention that has helped steady the currency.

The Indian rupee ended at 95.33 per U.S. dollar, up 0.1% from its close at 95.4350 in the previous session.

While dollar sales from state-run banks - most likely on behalf of the Reserve Bank of India - kept a lid on losses, caution heading into key U.S. and India inflation prints and worries over higher oil prices contained the room for gains, traders said.

India’s central bank has intervened frequently in the FX market over August, helping anchor the rupee after it threatened a breach of record lows last month.

“It’s a complicated market to trade and it’s unlikely that such price action keeps up,” a trader at a foreign bank said, noting that he sees higher chances of the rupee falling to 95.80 than strengthening to 95. The currency’s record low of 96.96 was hit in May.

Later in the day, the focus will be on inflation data releases.

India is expected to post data showing retail inflation rose to 4.5% in July, as per a Reuters poll. Analysts at BofA Global Research expect core inflation, which excludes volatile food and energy components, to remain below 3.8%.

“Core is likely to remain sticky as uptick in prices for services like recreation, restaurants and education would be offset by lower gold prices. The generalization of inflation remains key to watch for,” BofA analysts said in a note.

In the U.S., data is expected to show that consumer prices edged up 0.1% in July after falling 0.4% in June, according to a Reuters poll. The data will influence expectations of potential rate hikes by the U.S. Federal Reserve.

Money markets are pricing in a 50% chance of a September hike by the Fed and about 50 bps of hikes by the RBI over the next 12 months.