Fed rate outlook to push rupee lower; US inflation data key this week

The Indian rupee is likely to open lower against the dollar on Monday, tracking losses in Asian currencies and shares on concerns over the U.S. interest rate outlook.

The non-deliverable forwards indicated an opening of around 82.60-82.64 for the rupee to the U.S. dollar, compared with 82.4975 in the previous session.

The rupee last week recorded its worst performance in almost two months, weighed by the rise in U.S. yields and the dollar index. The December U.S. jobs report has prompted investors to reassess terminal rate expectations and the quantum of rate cuts the Fed will deliver later this year, lifting U.S. yields and the dollar.

Futures are now pricing in a peak rate of 5.18% and about 25 basis points (bps) of rate cuts this year. Before the U.S. jobs report, the peak rate was about 25 bps lower and around 50 bps of rate cuts were expected.

Comments by Fed officials that more rate hikes were needed have contributed to the change in the U.S. rate outlook.

On the back of this repricing, the U.S. consumer inflation data due on Tuesday will draw more than the usual scrutiny. Economists polled by Reuters expect both the annual headline and core inflation rate to soften.

"U.S. CPI (consumer price index) is the real risk event," ING Bank said in a note. We suspect key dollar crosses will stay rangebound until we see the inflation data, ING added.

Unless there is a big surprise in U.S. inflation data, the rupee should hold the 82.40-82.90 range, a trader at a Mumbai-based bank said.

The dollar index opened the week on a quiet note, while Asian currencies extended losses. The offshore Chinese yuan declined to nearly 6.84 to the dollar.

Also due later in the day is the India inflation data. The inflation rate is forecast to have risen to 5.9% in January from 5.72% in December.

KEY INDICATORS: ** One-month non-deliverable rupee forward at 82.72/82.76; onshore one-month forward premium at 12 paise ** USD/INR NSE February futures settled on Friday at 82.65 ** USD/INR February forward premium at 5.75 paise ** Dollar index at 103.74 ** Brent crude futures down 0.9% at $85.6 per barrel ** Ten-year U.S. note yield at 3.75% ** SGX Nifty nearest-month futures down 0.2% at 17,847 ** As per NSDL data, foreign investors bought a net $4 mln worth of Indian shares on Feb. 9

** NSDL data shows foreign investors sold a net $152.5 mln worth of Indian bonds on Feb. 9