Rupee to dig its heels near 86/USD before US inflation data test
The 1-month non-deliverable forward indicated that the rupee will open nearly unchanged from 85.9850 on Monday. The Indian currency spent much of Monday trading in a narrow range around the 86 level.
Price action "absolutely suggests" 86-86.10 is a supply zone, a currency trader at a bank said, noting that a large UK-based bank was on offer on USD/INR on Monday. The pair "is well-anchored" around 86, with U.S. tariff uncertainty lingering and Treasury yields inching higher.
"I doubt the upcoming U.S. inflation data will shift the tone much," he added.
Investors will be watching the June U.S. inflation data due later on Tuesday to gauge how much room the Federal Reserve has to cut rates. Markets are currently pricing in two rate cuts in 2025, with the first widely expected in September.
Economists have warned that U.S. President Donald Trump's tariffs could add upward pressure on inflation. The June print will be closely scrutinised for any signs of those effects filtering through to consumer prices.
Goldman Sachs said in a note that it expects June core CPI to accelerate to 0.23% on-month, corresponding to a year-over-year rate of 2.93%. It expects moderate upward pressure from tariffs on select categories that are particularly exposed.
Looking ahead, the bank said tariffs are likely to deliver a somewhat larger boost to monthly inflation prints.
U.S. Treasury yields moved higher before the inflation data, with the 10-year yield hovering near its highest level in a month, lending support to the dollar.
Asian currencies were mostly weaker on Tuesday, reflecting cautious sentiment.
KEY INDICATORS:
** One-month non-deliverable rupee forward at 86.10; onshore one-month forward premium at 10 paisa
** Dollar index at 98.06
** Brent crude futures down 0.3% at $69 per barrel
** Ten-year U.S. note yield at 4.44%
** As per NSDL data, foreign investors sold a net $523.6 million worth of Indian shares on July 11
** NSDL data shows foreign investors bought a net $31.4 million worth of Indian bonds on July 11
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