The Indian rupee is tipped to open higher against the dollar on Thursday after softer-than-expected U.S. consumer inflation data raised bets of less aggressive Federal Reserve rate hikes.
The rupee is seen at around 79.05-79.10 per U.S. dollar in initial trades, up from 79.52 in the previous session.
The dollar tumbled against its major peers on Wednesday after U.S. headline and core inflation rates rose less than expected last month.
Expectations that the Fed will raise rates by 75 basis points dropped to near 40% from 70% prior to the data, according to the CME FedWatch Tool.
Treasury yields declined on Wednesday and the S&P 500 Index reached its highest since May. The USD/INR non-deliverable forwards tumbled.
“Finally we have data that supports the peak U.S. inflation narrative, offering relief to the rupee and other emerging market currencies,” a trader at a foreign bank said.
“The question now will be how much of the relief on inflation has already been priced in. For now at least, the rupee is unlikely to revisit the 80 levels.”
The slowdown in the U.S. annual inflation rate should help the recent revival in foreign equity inflows, helping the rupee.
Locally, market participants will now focus on India‘s retail inflation data due on Friday.
While slowing U.S. inflation could offer some leeway on coming rate hikes, Fed policymakers indicated that additional work was needed to fully contain inflation..
The South Korean won lead Asian currencies higher on Thursday, while equity gauges advanced up to 1.5%.
This was the second consecutive hike of 50 bps, and the third rate hike of this fiscal. The monetary tightening was triggered by high inflation, synchronised policy tightening globally, and volatile global financial conditions.
India, Thailand and Korea have seen their reserves drop by a combined $115 billion this year as they sold dollars to curb currency declines. While most central banks in Asia are also raising rates, economists see this aimed more at tamping down inflation than narrowing the rate differential with the Federal Reserve.