The Indian rupee is likely to open marginally lower and hover close to its all-time low on Thursday, after U.S. inflation data reinforced bets of a December rate cut by the Federal Reserve, but did little to dent the dollar's stride.
The 1-month non-deliverable forward (NDF) indicated that the rupee will open at around 84.85 the U.S. dollar compared with its previous close of 84.83.
The dollar index was little changed at 106.5 after U.S. inflation data released on Wednesday was along expected lines.
While the data prompted investors to almost fully price in a December rate cut, the dollar was largely unaffected while U.S. Treasury yields rose following a supply of long-dated bonds and data pointing to a widening U.S. budget deficit.
Odds of a December cut have climbed to 98% from 88% a day earlier, according to CME's FedWatch tool.
Improved odds of a Fed cut are likely to have a "bigger impact on (USD/INR) forward premiums as compared to spot," a trader at a private bank said.
Dollar bids in NDF market alongside persistent bids from importers are likely to weigh on the rupee while the Reserve Bank of India "will expectedly be present," to limit losses, the trader said.
The rupee had declined to its all-time low of 84.86 on Wednesday, pressured by weakness in the Chinese yuan and strong dollar bids in the NDF market.
Expectations of a dovish tilt at the Reserve Bank of India next year, following the appointment of a new governor, have also weighed on the rupee, traders said.
The new governor's "preference on monetary policy will take some time to be revealed but there is overall a good chance that the collective Monetary Policy Committee turns more dovish in 2025," MUFG Bank said in a note.
The bank expects the RBI to start easing policy rates from February and has forecast that the rupee will decline to 85.20 by the end of March 2025.
KEY INDICATORS:
** One-month non-deliverable rupee forward at 85.04; onshore one-month forward premium at 18.50 paisa
** Dollar index at 106.5
** Brent crude futures down 0% at $73.5 per barrel
** Ten-year U.S. note yield at 4.28%, India 10-yr bond yield at 6.75%
** As per NSDL data, foreign investors bought a net $220 mln worth of Indian shares on Dec. 10
** NSDL data shows foreign investors bought a net $64.4 mln worth of Indian bonds on Dec. 10