MUMBAI: The Indian rupee will be counting on the central bank’s assistance on Tuesday to avoid declining to a record low, after robust US manufacturing data pushed the dollar index to its highest level in more than four months.
Non-deliverable forwards indicate rupee will open flat to slightly weaker to the US dollar from 83.40 on Monday.
The local currency last Wednesday touched a record low of 83.45, which bankers said prompted the Reserve Bank of India (RBI) to intervene.
“You would expect the RBI to sell (USD/INR) and the opening price action will reflect that,” a forex trader at a private sector bank said. “However, with the way dollar and US yields are, dips (on USD/INR) will not amount to much.”
The dollar index rallied in the New York session and inched up further in Asia, after an unexpected expansion in US manufacturing activity prompted investors to dial back odds of a Federal Reserve rate cut at the June meeting.
A cut at the May meeting has already been priced out.
The Institute for Supply Management’s (ISM) US manufacturing PMI increased to 50.3 last month, from 47.8 in February and compared to estimates of 48.3.
This was the first time since September 2022 that the PMI crossed 50, a level that separates expansion and contraction.
Indian rupee’s upside momentum faces US inflation, RBI test
“The ISM manufacturing index surprised everyone by moving into growth territory,” ING Bank said in a note.
The market’s interpretation is that it reduces the chances of meaningful Fed rate cuts, it said. US Treasury yields surged and the dollar index climbed past 105 for the first time since November.
The S&P 500 Index dropped and futures on the gauge were lower in Asia.
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