Indian rupee set to weaken further
The Indian rupee is expected to weaken on Monday, adding to last week's losses, tracking a rally on the dollar index and higher US yields on worries surrounding US inflation.
Non-deliverable forwards indicate the rupee will open at around 82.20-82.22 to the US dollar, compared with 82.1625 in the previous session.
The dollar index climbed 0.6 per cent on Friday to reach its highest level in a month and the two-year US yield was back to nearly 4 per cent. Renewed worries over the inflation outlook in the US pushed yields higher and supported demand for the dollar, reports Reuters.
A survey from the University of Michigan on Friday showed consumers' long-term inflation expectations jumping this month to their highest reading since 2011, hurting sentiment that the US Federal Reserve is done with its tightening cycle.
The odds of an interest rate hike from the Fed at its June meeting inched up, although the base scenario remains that of a pause.
Fed Governor Michelle Bowman last Friday said the central bank will probably need to raise rates further if inflation stays high, adding that key data so far this month has not convinced her that price pressures are receding.
There are 10 Fed speakers scheduled over the coming days, including Chair Jerome Powell this Friday, according to ANZ.
"Their assessments of whether recent labour market and inflation data support pausing in June or not will be scrutinised," ANZ said in a note.
Asian currencies declined except for the Thai baht, which was supported by the country's election results. The offshore yuan dropped to its lowest level in over two months.
The Indian rupee, like the rest of Asia FX, is expected to struggle, but will receive support at 82.25, a high USD/INR reached on Apr 19, according to a spot trader. India's inflation data was "supportive" of the rupee in the medium term, the trader said.
India's annual retail inflation eased to a 19-month low of 4.7 per cent in April.
** One-month non-deliverable rupee forward at 82.32; onshore one-month forward premium at 10.5 paise
** USD/INR NSE May futures settled on Friday at 82.2225
** USD/INR May forward premium at 4.75 paise
** Dollar index at 102.66
** Brent crude futures down 0.5 per cent at $73.8 per barrel
** Ten-year US note yield at 3.46 per cent
** SGX Nifty nearest-month futures down 0.2 per cent at 18,282
** As per NSDL data, foreign investors bought a net $120.7mln worth of Indian shares on May 11
** NSDL data shows foreign investors