The Indian rupee is set to open lower on Monday, influenced by the decline of the Chinese yuan and concerns over potential election-related uncertainties leading to further portfolio outflows. Non-deliverable forwards suggest that the rupee may open at 83.54-83.55 against the U.S. dollar, compared to 83.50 in the prior session, nearing its all-time low of 83.5750.
The Reserve Bank of India (RBI) is likely to have intervened to support the domestic currency amidst these pressures. However, market sentiment remains cautious, with traders closely monitoring the RBI's actions to gauge its willingness to allow the rupee to depreciate further.
A foreign exchange trader at a bank commented, "And yet again, we will be watching the RBI. The bias (on USD/INR) is higher, and it will be on the RBI if they want to allow a further inch up." The rupee's vulnerability stems from portfolio outflows, particularly in the equity market, which persisted throughout last week. The rupee's losses would have been more significant if not for the probable intervention by the RBI.
Last week witnessed foreign investors withdrawing over $2 billion from Indian equities, with Friday alone witnessing an outflow exceeding $250 million, as per provisional data from exchanges. This ongoing trend has put additional pressure on the rupee, exacerbating concerns about its stability in the near term.
In broader markets, Asian currencies are starting the week on a defensive note. The offshore yuan weakened past 7.24 to the dollar, while the Japanese yen depreciated to nearly 156. Other Asian currencies also experienced declines ranging from 0.1% to 0.4%.
Investor focus remains on the U.S. consumer inflation data scheduled for release on Wednesday, which is expected to be the primary data point for the week. Recent inflation readings in the U.S. have surpassed expectations, leading investors to recalibrate their expectations regarding the Federal Reserve's rate cut trajectory for the year.
HSBC noted in a statement, "The U.S. core consumer price index likely rose 0.3% month-on-month in April." The bank highlighted the trend of the HSBC's U.S. Inflation surprise index trending higher since January, indicating the market's adjustment in response to stronger-than-anticipated inflation data.
As uncertainties persist both domestically and internationally, the Indian rupee faces downward pressure amid fears of heightened volatility in the global financial markets. Traders and investors alike remain vigilant, awaiting further developments and potential interventions from central banks to stabilize currency movements amidst turbulent times.