Rupee to rally on growing bets Fed to cut rates next year – Reuters

A customer hands over Indian banknotes to an attendant at a petrol station in Mumbai, India, on August 13, 2018. Reuters/Francis Mascarenhas/File Photo Obtaining license rights

MUMBAI, Nov 15 (Reuters) – The Indian rupee weakened on Wednesday after weaker-than-expected U.S. inflation trends raised the possibility that the Federal Reserve will cut interest rates around the middle of next year. It is expected that the price will rise accordingly.

Non-deliverable forwards suggest the rupee will open around 83.00 to the dollar, from 83.3325 rupees in the previous session.

U.S. Treasury yields plunged on Tuesday, the dollar index posted its worst session in a year, and U.S. consumer prices were flat in October, with annual underlying inflation rising by the smallest in two years. U.S. stocks soared after data showed that

Asian currencies soared, with the Korean won rising 2%, and the Indonesian rupiah and Malaysian ringgit rising 1.4% and 1.1%, respectively.

A bank foreign exchange spot dealer said there was “significant movement across asset classes” and the rupee would reflect that at the open.

“The question is what happens after that. Will the (US dollar/Indian rupee) decline around $83 continue or will this decline end?”

The odds of the Fed raising interest rates in December, which were already low on the back of inflation data, are now fully priced in.

More important for the rupee and other Asian currencies is the growing likelihood that the Fed will cut interest rates next year.

ANZ pointed out that the Fed’s first interest rate cut was priced in in May, earlier than the data showed.

“The level of financial restraint increasingly appears to be having desirable outcomes for both inflation and the labor market,” the report said.

Futures are pricing in a total rate cut of 100 basis points in 2024.

India’s retail inflation slowed to a four-month low in October, with annual retail inflation at 4.87%, down from 5.02% in the previous month.

Key metrics:

** 1-month non-deliverable rupee forward at 83.06 rupees. Onshore his one month futures premium is 4.5 paisa** dollar index is 104.14

** Brent crude oil futures rose 0.3% to $82.7 per barrel.

** U.S. 10-year bond yield is 4.44%

** According to NSDL data, foreign investors bought a total of $639.2 million worth of Indian stocks on November 10 and November 12.

** Foreign investors bought a net worth of $378.5 million worth of Indian government bonds on November 10, according to NSDL data.

Report by Nimesh Vora.Editing: Sohini Goswami

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