The Indian rupee is anticipated to experience a slight decline at the open on Tuesday, influenced by an uptick in most Asian currencies following a U.S. inflation report that reinforced expectations of multiple rate cuts by the Federal Reserve in the coming year. Non-deliverable forwards (NDFs) suggest an opening of 83.18-83.20 to the U.S. dollar, compared to 83.14 on Friday when Indian markets were closed.
A foreign exchange trader noted that the NDFs indicating a lower opening for the rupee “merely reflects how directionless it all is,” emphasizing that the dips in USD/INR have been consistently bought into. Asian currencies, including the Indian rupee, saw gains ranging from 0.1% to 0.4% after U.S. data revealed a decline in prices for November, pushing annual inflation further below 3%.
The data has intensified expectations that the Federal Reserve will not maintain current interest rates for an extended period. Investors are now pricing in a high probability of a rate cut in March, with speculations of a total of 150 basis points of rate reductions in 2024. The decline in the 2-year U.S. Treasury yield and the dollar index‘s 1% month-to-date decrease contribute to the global sentiment of potential rate adjustments.