MUMBAI: The Indian rupee is expected to inch higher on Tuesday to begin a week that will traders assess the outlook for US interest rates and provide cues on the US labour market.
Non-deliverable forwards indicate rupee, resuming trader after the extended weekend, will open at around 81.76-71.78 to the US dollar compared with 81.8250 on Friday.
There are “two clear markers” for speculators to work with, 81.60 and 82.00, a spot trader said. Any move above or below these markers following the Fed outcome, should see a “round of stop losses and a bit of follow through.”
The Fed during U.S trading hours on Wednesday is expected to raise rates by a quarter percentage points, interest rate futures indicate. What the Fed says on the outlook will be key for rupee and other Asian currencies.
Heading into the meeting, futures are pricing in a 1-in-4 chance that the Fed will hike again in June and are expecting the policy rate to fall to around 4.50% by Dec this year.
“We expect the Fed to deliver a 25bp hike and communicate a conditional pause,” Morgan Stanley said in its Fed preview.
Indian rupee keeps up momentum, thanks to dollar’s struggles
“Two-way risk around the next move means the statement will likely reveal a high degree of flexibility.”
Data released on Monday supported a rate hike this week.
US manufacturing pulled off of a three-year low in April and construction spending increased more than expected in March.
US yields rose on Monday, lifting the dollar index to near the 102 level.
The 2-year US yield reached 4.16% at one point overnight.
Meanwhile, on Friday, data is expected to show that the US economy added 180,000 jobs last month.
Alongside, the job creation numbers, investors will be look at the wage growth to gauge the inflationary pressures.
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