The Indian rupee is likely to open slightly higher on Monday, supported by a drop in oil prices on receding worries over the Iran-Israel confrontation and by possible dollar inflows.
Non-deliverable forwards indicate the rupee will open at 83.40-83.42 to the U.S. dollar, compared with the previous close of 83.47.
The rupee declined to an all-time low of 83.5750 on Friday, prompting the Reserve Bank of India to intervene in non-deliverable forwards and the onshore over-the-counter market.
“In a way, the RBI managed to kill off the appetite for (dollar/rupee) longs,” a FX trader said.
“Now with oil having retraced fully and the likelihood of inflows, you will have a minor push lower (on dollar/rupee),” the trader said, refereeing to inflows from a follow-on public offering (FPO) of Vodafone Idea. Monday is the last date of the FPO.
Brent crude, which jumped to USD 90.75 on Friday, cooled to near USD 86.50 after Israel and Iran played down the risks of a further rise in hostilities in the Middle East after Israel’s apparently small strike on Iran.
Focus now returns to U.S. interest rates, which are likely to remain high for longer than previously expected on sticky inflation.
On Friday, Chicago Federal Reserve President Austan Goolsbee became the latest policymaker to signal a longer timeline for interest rate cuts because progress on inflation has “stalled”.
The U.S. core personal consumption expenditures price index, the Fed’s preferred inflation measure, out on Friday will provide investors more cues on the interest rate path.
Only one-and-a-half rate cuts are now priced in 2024, likely beginning from September.
“We still think we’ll get some interest rate cuts in America this year, but far fewer than we thought just months ago,” ING Bank said in a note.
