By Nimesh Vora
MUMBAI (Reuters) -The Indian rupee is poised to open higher on Wednesday after the July U.S. inflation data indicated limited impact of tariffs, providing room for the Federal Reserve to cut rates next month.
The 1-month non-deliverable forward indicated the rupee will open in the 87.58-87.62 range versus the U.S. dollar, compared with Tuesday’s close of 87.7125.
The rupee may get “only modest relief” from the boost in Fed rate cut expectations, a currency trader at a Mumbai-based bank said. Uncertainty over U.S. tariffs remains the dominant drag on sentiment, he noted, adding that the upcoming Trump-Putin summit is a key risk event that could sway the currency’s direction.
U.S. President Donald Trump and his Russian counterpart Vladimir Putin will meet this Friday in Alaska to hold discussions on halting the war in Ukraine.
The upcoming Putin-Trump meeting takes on added significance for the rupee amid the recent escalation in U.S. tariffs on India over its purchase of Russian oil. The outcome could shape expectations on whether trade tensions will ease or deepen.
Any sign of a thaw between Washington and Moscow could open the door for tariff relief, offering the rupee breathing space, traders said.
DOLLAR, U.S. YIELDS DROP
The dollar index dropped on Tuesday and near maturity U.S. yields declined after the highly-anticipated U.S. July inflation reading indicated Trump’s tariff regime had yet to filter down to consumer prices.
“Inflation was broadly in line with expectations,” ING Bank said in a note.
“Tariffs continue to be largely absorbed within U.S. corporate profit margins. This gives the Fed the room to respond to the weaker jobs backdrop and cut interest rates from September.”
The already-high odds of a September rate cut have climbed to 94%, with investors now pricing in about 60 basis points of total cuts for the year.
KEY INDICATORS:
** One-month non-deliverable rupee forward at 87.71; onshore one-month forward premium at 11.25 paise
** Dollar index down at 98.02
** Brent crude futures down 0.1% at $66 per barrel
** Ten-year U.S. note yield at 4.29%
** As per NSDL data, foreign investors sold a net $110.1mln worth of Indian shares on Aug. 11
** NSDL data shows foreign investors sold a net $15.1mln worth of Indian bonds on Aug. 11
(Reporting by Nimesh Vora; Editing by Janane Venkatraman)
