The Indian rupee is poised to open stronger on Wednesday, bolstered by a weaker US dollar following softer-than-expected inflation data and signs that the significant one-off outflow seen in the previous session is unlikely to repeat.
The 1-month non-deliverable forward (NDF) suggests an opening range of 85.00–85.04 to the US dollar, compared to the previous close of 85.33. The more favorable outlook reflects improving sentiment around the Indian currency.
Rupee Reverses on Flow-Driven Volatility
On Tuesday, the rupee experienced an intraday reversal, initially appreciating to 84.60, before weakening to nearly 85.50. The move was primarily attributed to dollar purchases by a large state-run bank, likely associated with a one-off outflow, followed by foreign bank demand.
However, a currency trader at a Mumbai-based bank noted that this reversal was flow-driven and unlikely to reoccur. “With the dollar broadly on the backfoot, the rupee should be able to sustain its opening upmove,” the trader said, emphasizing that the bias on the rupee remains positive amid current volatility.
US Dollar Pressured by Soft Inflation Data
The US dollar lost ground after the US Consumer Price Index (CPI) for April came in at 0.2%, slightly below the 0.3% forecast. This weaker inflation print has reignited rate cut expectations from the Federal Reserve.
The softer reading, combined with recent US trade de-escalations, suggests that inflationary pressures may be easing. In a research note, ING Bank stated:
“We had been looking for the Fed to wait until September before cutting and that still holds.”
However, the outlook remains data-dependent, and the Fed is likely to proceed cautiously given broader macroeconomic developments.
Rupee Outlook: Positive Bias Amid External Relief
With the US dollar losing steam and expectations of further rate cuts later in the year, the rupee stands to benefit in the short term. Market participants believe that unless fresh external shocks or unexpected outflows arise, the Indian rupee could maintain a gradual strengthening trend.
Moreover, investor focus will now shift to domestic macro data and external flows to gauge how long the rupee can sustain its upward trajectory.
