Indian rupee finds support from cooling Fed hike bets, unrelenting crude surge a drag
- The rupee has come under significant pressure following renewed US-Iran hostilities, which has spurred a jump in oil prices
MUMBAI: The Indian rupee is likely to open little changed on Wednesday, as softer U.S. inflation data tempers expectations of a near-term Federal Reserve rate hike, offseting pressure from a continued rally in crude oil prices.
The Indian rupee is expected to open in the 96.18-96.22 range, per traders, having settled at 96.20 on Tuesday.
The rupee has come under significant pressure following renewed US-Iran hostilities, which has spurred a jump in oil prices.
Brent crude was perched near $86 a barrel in Asia trading, well above the roughly $70 level seen just two weeks ago.
Tuesday’s session underscored the rupee’s fragility, with the currency weakening past the 96-per-dollar level despite dollar sales by the central bank in the spot and non-deliverable forward markets.
The underlying bias on the rupee has turned considerably weaker over the last two sessions, a currency trader at a bank said.
While higher oil prices are obviously part of the story, there appears to be more weighing on the rupee than just crude,“ he added.
Good news on us inflation
The rupee and other Asian currencies received relief from softer-than-expected U.S. inflation data. Consumer prices rose less than forecast in June, prompting markets to scale back expectations of near-term Federal Reserve rate hikes.
The probability of a 25-basis-point Fed rate increase at the July meeting fell to 16.6% from 41.7% a day before, per CME Group’s FedWatch tool. For September, markets priced in a 59.8% chance of a hike, down from 75.1% on Monday.
Expectations of Fed hikes had strengthened in recent days amid the escalation in the Middle East conflict and the resulting rise in oil prices.
The June inflation data, however, moderated those concerns and provided support for risk assets and Asian currencies.
Surprisingly cool June inflation, slowing in core Personal Consumption Expenditures, and softer jobs data rule out a July rate hike, Citi Research said in a note.
“We expect similar data in coming months will lead markets to price-out the chance of rate hikes altogether.”
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