Indian Rupee Expected to Strengthen on Positive GDP Surprise and Fed Pause Speculations

The Indian rupee is anticipated to open on a positive note this Thursday, supported by expectations of a pause in U.S. Federal Reserve actions next week and a pleasantly surprising local GDP report.

According to non-deliverable forwards, the rupee is projected to open around 82.64-82.66 against the U.S. dollar, compared to the previous session's rate of 82.7225.

Recently released data showed that India's economic growth accelerated to 6.1% in the March quarter, surpassing economists' expectations of a 5% reading, as per a Reuters poll.

This impressive GDP print is likely to have a favorable impact on the equity portfolio flows, contributing to the ongoing revival in the market, remarked a salesperson from a bank. They also mentioned a possibility of the USD/INR pair experiencing a gradual decline towards 82.50.

Meanwhile, the market sentiment regarding the Fed's upcoming actions underwent a change following comments by two policymakers who expressed their preference for not raising rates next week.

Fed Governor and vice chair nominee, Philip Jefferson, suggested that skipping a rate hike would allow the Fed to gather more data before making decisions on further policy firming.

Philadelphia Fed President, Patrick Harker, also indicated his inclination towards skipping a rate hike.

Analysts at DBS Research noted that more time is likely needed to assess incoming data and agreed with the view of taking a cautious approach after implementing significant rate hikes.

The probability of a rate hike next week has now dropped to approximately 1-in-3, down from the previous estimate of around 2-in-3, according to the CME FedWatch Tool. This shift in expectations has led to a decline in U.S. yields.

As U.S. yields fell, several Asian currencies, including the Chinese yuan, experienced gains. The yuan recovered from its previous session's lows of around 7.1340 to 7.1116 against the U.S. dollar.

The focus now turns to the Senate regarding the U.S. debt ceiling, following its approval by the House of Representatives.

Key indicators for consideration include one-month non-deliverable rupee forward at 82.70, onshore one-month forward premium at 7.5 paise, USD/INR NSE June futures settling at 82.8250, USD/INR June forward premium at 7 paise, dollar index at 104.20, Brent crude futures rising 0.7% to $73.1 per barrel, ten-year U.S. note yield at 3.67%, SGX Nifty nearest-month futures down 0.3% at 18,607, foreign investors buying a net $295.1 million worth of Indian shares on May 30 according to NSDL data, and foreign investors purchasing a net $78.4 million worth of Indian bonds on the same day.

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