Rupee Slips As Asian FX Decline Ahead Of U.S. Inflation Test

Markets are largely expecting inflation to ease slightly and for the Fed to hike rates by 50 basis points (bps)

The partially convertible rupee ended at 82.80 per dollar, against its previous close of 82.53.

Dollar demand by domestic players continued, with importers of oil and other commodities “bidding heavily” for the U.S. currency, a foreign exchange trader said.

Asian currencies were weaker against a steady dollar index ahead of the November U.S. consumer prices report. Any positive surprise there could influence the Federal Reserve’s monetary policy decision due on Wednesday.

For now, markets are largely expecting inflation to ease slightly and for the Fed to hike rates by 50 basis points (bps).

“We could see the dollar bouncing on any upside surprise in today’s CPI data, including upward revisions to last month’s reading,” ING analysts wrote, but with a caveat that the moves could be curtailed due to the looming Fed meet.

In India, headline inflation came in at a much lower than expected 5.88 per cent in November led by lower food prices and vegetables, data showed on Monday.

“We continue to expect another 25 bps hike in the February 2023 policy review even though it could be a tough choice if external headwinds and monetary tightening start weighing on domestic demand,” said Tanvee Gupta Jain, UBS India economist.

The other set of data out on Monday showed India’s annual industrial output contracted 4 per cent  in October to a 26-month low, as rising rates hit activity.

Meanwhile, bankers told Reuters that due to rupee’s relative stability in recent weeks, the RBI has lifted the informal restrictions on non-deliverable forward trades it had placed on local banks in October.

This has led to the premiums on USD/INR edging up since late last week, one trader said. The 1-year forward implied yield is at 1.87 per cent, versus 1.62 per cent last Tuesday.