Rupee may weaken despite broadly positive Asian cues

By Nimesh Vora

MUMBAI (Reuters) – The Indian rupee is likely to decline slightly at open on Tuesday, in spite on an uptick on most Asian currencies after a U.S. inflation print reinforced expectations the Federal Reserve will cut rates several times next year.

Non-deliverable forwards (NDFs) indicate the rupee will open at 83.18-83.20 to the U.S. dollar compared with 83.14 on Friday. Indian markets were off on Monday.

NDFs indicating a lower opening (for the rupee) “is nothing” and “merely reflects how directionless it all is,” a foreign exchange trader at a bank said.

“The dips (on USD/INR) have been bought into and that may be it.”

Asian currencies were up 0.1% to 0.4% after data out Friday indicated that U.S. prices fell in November for the first time in more than 3-1/2 years, pushing the annual increase in inflation further below 3%.

The personal consumption expenditures (PCE) price index, fell 0.1% month-on-month in November, while the core PCE measure increased less than expected.

After Friday’s print “the required December monthly print to reach Fed’s forecast for 2023 of 3.2% (Q4/Q4) is around 0.2% month-on-month,” Morgan Stanley said in a note.

The data is likely to further spur bets that the Fed will not be holding rates this high for much longer.

Investors are pricing in high probability of a rate cut next March and are looking at a total of 150 basis points of rate reductions in 2024.

The 2-year U.S. Treasury yield dipped on Friday and logged its fifth weekly fall. The yield has dropped nearly 40 bps in December, dampening demand for the dollar.

The dollar index is down 1% month-to-date.

KEY INDICATORS: ** One-month non-deliverable rupee forward at 83.24; onshore one-month forward premium at 8 paisa ** Dollar index down at 101.58 ** Brent crude futures down 0.4% at $79.1 per barrel ** Ten-year U.S. note yield at 3.88%

** As per NSDL data, foreign investors sold a net $157.4 mln worth of Indian shares on Dec. 21

** NSDL data shows foreign investors bought a net $54.4 mln worth of Indian bonds on Dec. 21

(Reporting by Nimesh Vora; Editing by Mrigank Dhaniwala)