Indian Rupee Focuses on Recovery Amid Dollar Index, Capital Flows

The Indian Rupee is anticipated to trade within a narrow range on Friday as the Dollar Index recovers from its sell-off triggered by the US inflation data. Meanwhile, portfolio and corporate flows are expected to take the spotlight.

Non-deliverable forwards suggest that the Rupee will open largely unchanged at 83.50 against the US Dollar compared to the previous session.

Despite the broad sell-off of the Dollar on Thursday following weaker-than-expected US inflation data, the Rupee did not benefit significantly.

“What can be said when nothing noteworthy happens on a major news day? Expect another quiet day with a fluctuation range of 3-4 Paisa below the 83.50 mark,” stated a foreign exchange dealer at a bank.

“Given the current situation, I believe we will have to wait until the election surveys and results to see any significant trading movements.”

The results of the Indian parliamentary elections are expected on June 4, with exit polls to be released after the final phase of voting on June 1.

“Until then, you can expect tight intraday movements based on trading flows,” said a senior treasury official at a bank. “The focus will be on what major custodial banks are planning and whether importers will resume their hedging activities.”

The Dollar Index and US yields were higher, reversing the movements seen after the release of the US inflation data. Asian currencies declined following Thursday’s rally.

The number of Americans filing new claims for unemployment benefits fell last week, indicating underlying strength in the US labor market and suggesting that interest rates might remain higher for a longer period.

Referring to the rise in US yields, ING Bank mentioned that Federal Reserve officials have “again indicated that rates will need to stay higher for longer.”