Rupee weakness set to linger in lead up to RBI verdict, US jobs data
The RBI outcome is expected to provide cues on the domestic rate outlook, while the latter could shape expectations for U.S. interest rates.
The 1-month non-deliverable forward indicated an open in the 85.86-85.90 range, versus 85.79 in the previous session. The rupee inched up 0.1% against the U.S. dollar on Thursday, finding support at the 86 level.
While the rupee found slight relief on Thursday, the "overall direction of travel" remains on the downside, a currency trader at a Mumbai-based bank said.
"With the RBI policy due shortly, it should be quiet after the opening move higher (on dollar/rupee)," he said.
The trader expects the dollar/rupee to be supported at 85.60-85.70 and pegs resistance at 86-86.10, reckoning that the range will hold up after the two catalysts.
The RBI is widely expected to cut interest rates by 25 basis points, marking its third straight reduction amid a backdrop of benign inflation. India's largest lender by assets, State Bank of India, is more dovish and is calling for a 50 bps rate cut.
A 50-bps "will not be received well" by the rupee and will lead to a sizeable up move on the dollar/rupee at least initially, the currency trader said.
Inflation forecast revision and comments by the RBI head will be watched for cues on what comes next for interest rates.
Meanwhile, the U.S. non-farm payrolls report, due later in the day, will attract attention amid signs that President Donald Trump's tariffs are weighing on the economy.
Investors are currently pricing in two rate cuts by the Federal Reserve this year. A weaker-than-expected jobs report could increase expectations for further cuts, putting additional pressure on the already struggling dollar.
"The US labour market is so essential in underpinning market confidence that we must be prepared and reactive if we were to see an outlier outcome," Chris Weston, head research at broker Pepperstone, said.
KEY INDICATORS:
** One-month non-deliverable rupee forward at 85.98; onshore one-month forward premium at 10.5 paisa
** Dollar index at 98.81
** Brent crude futures down 0.2% at $65.2 per barrel
** Ten-year U.S. note yield at 4.40%
** As per NSDL data, foreign investors bought a net $186.8mln worth of Indian shares on June 4
** NSDL data shows foreign investors sold a net $130.7mln worth of Indian bonds on June 4
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