Rupee back under pressure as US economic data spurs dollar recovery

Non-deliverable forwards suggest an opening around 83.20 against the US dollar, slightly lower than the previous close of 83.1425. Despite Wednesday’s notable gain, the rupee is poised to face renewed pressure as the dollar index edges up to 104.50.

The rebound in the dollar comes on the heels of US retail sales, which, although slipping 0.1 per cent month-on-month in October, fell less than the anticipated 0.3 per cent, aiding the dollar’s recovery from recent soft inflation data. Asian currencies, consequently, dropped between 0.2 per cent to 0.6 per cent, and the 10-year US Treasury yield remained near 4.50 per cent.

Forex traders predict the rupee will be “back on the defensive” after a brief respite, with a potential revisit to the 83.30 level. The challenging trade data adds to the rupee’s woes, as India’s merchandise trade deficit reached a record high of $31.5 billion in October.

Despite the setback for emerging market currencies, US retail sales data suggests a “decent resilience,” challenging the consensus view of weak fourth-quarter GDP growth. This sentiment is echoed by ING Bank, which notes that the data supports the belief that the fourth-quarter GDP growth may not be as feeble as currently predicted.

The dollar’s upward momentum is further fueled by remarks from Federal Reserve officials, particularly San Francisco Fed President Mary Daly, who cautioned against prematurely ending the rate-rising cycle.

Daly emphasised the Fed’s commitment to maintaining restrictive rates for an extended period before normalisation, providing additional support to the US dollar, according to DBS Research.

(With Reuters Inputs)