Rupee caught between robust India growth, dollar index upmove

By Nimesh Vora

MUMBAI (Reuters) – The Indian rupee is expected to open flat on Friday and remain in a narrow range, caught between the Asian nation’s December quarter growth, which exceeded expectations, and the upmove in the dollar index.

Non-deliverable forwards indicate the rupee will open little changed from 82.9125 in the previous session. The domestic currency has been in a less then ten paisa range this week on likely dollar buying by the central bank, on one hand, and inflows on the other.

The rupee’s range this week “has probably been squeezed more, if that was possible”, an FX trader at a bank said.

“While one can talk about India GDP and U.S. inflation numbers, they hardly matter” from the rupee’s point of view, the trader said.

India’s economy grew at its fastest pace in one-and-half years in the December quarter, blowing past expectations and supporting the view among several market participants that the rupee’s medium-term outlook is positive.

Meanwhile, the dollar index rose on Thursday following a choppy session. The Fed’s favoured measure of inflation supported bets that the U.S. central bank will not cut rates at its March or May meeting.

The U.S. personal consumption expenditures (PCE) price index rose 0.3% last month, in-line with expectations. The core PCE increased 0.4%.

The data follows the higher-than-forecast print for U.S. January consumer inflation data.

“Given the recent performance of U.S. data, the fear was we could get yet another upside surprise,” ING Bank said in a note.

While Thursday’s number “in itself is too hot” for the Fed to contemplate an imminent rate cut, “we have to acknowledge that for six out of the past eight months, we have been tracking below the 0.17% month-on-month rate we need to consistently hit to bring annual inflation back to 2% over time”, ING said.

KEY INDICATORS: ** One-month non-deliverable rupee forward at 82.99

** Dollar index at 103.90 ** Brent crude futures at $83.62 ** Ten-year U.S. note yield at 4.28% ** As per NSDL data, foreign investors sold $168 million of Indian shares on Feb. 28

** NSDL data shows foreign investors bought $102 million of Indian bonds on Feb. 28

(Reporting by Nimesh Vora; Editing by Sonia Cheema)

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