Rupee may edge lower ahead of key U.S. inflation data

The Indian rupee is tipped to open marginally weaker versus the U.S. dollar on Thursday, pulling back from more-than-one-month highs ahead of the all-important U.S. inflation data.

The rupee USDINR is likely to open at around 81.62-81.66 to the dollar, compared with 81.5750 on Wednesday.

The rupee has rallied 1.4% over the previous three sessions, leading to a near-term momentum indicator signalling that the currency may be overbought.

With the RSI (relative strength indicator) on USD/INR near the 30 level and taking into account the key U.S. data that is due, the rupee will likely take a bit of a breather, a trader at a Mumbai-based bank said.

An RSI reading below 30 and above 70 is an indicator that a security is oversold or overbought, respectively.

U.S. headline consumer inflation likely slowed to 6.5% year-on-year last month, from 7.1% in November, according to economists polled by Reuters. On a month-on-month basis, prices are projected to have remained unchanged.

The last two inflation readings have surprised on the downside, allowing investors to dump the dollar and take riskier bets.

Another such surprise will reinforce expectations that the Federal Reserve is close to pausing its rate-hike cycle.

Futures are pricing in a high likelihood of a maximum of two 25-basis-points rate hikes, followed by shallow rate cuts later in the year.

The inflation data is all the more critical as the market expectations run contrary to Fed policymakers' indications that they will cut rates only in 2024.

"Although the market has priced in a smaller 25 bps hike at the Fed meeting on Feb. 1, Fed officials kept the door open for a 50 bps hike in case inflation surprised," DBS Group Research said in a note.

KEY INDICATORS:

** One-month non-deliverable rupee (INRNDFOR=) forward at 81.74; onshore one-month forward premium at 11.75 paisa

** USD/INR NSE January futures settled on Wednesday at 81.7075

** USD/INR January forward premium (INR1FC=) at 6.0 paisa

** Dollar index DXY at 103.04

** Brent crude futures BRN1! up 0.3% at $82.9 per barrel

** Ten-year U.S. note yield at 3.53%

** SGX Nifty (SINc1) nearest-month futures up 0.3% at 18,004

** As per NSDL data, foreign investors sold a net $222 mln worth of Indian shares on Jan. 10

** NSDL data shows foreign investors bought a net $16.4 mln worth of Indian bonds on Jan. 10