Rupee may struggle amidst weak Asian peers, likely muted inflows

The Rupee is expected to experience a slight decline on Tuesday, influenced by losses in Asian counterparts and the prospect of subdued portfolio inflows. 

Non-deliverable forwards suggest a marginal opening lower against the US dollar, compared to the previous close of 83.2375 on Monday.

The dollar index edged higher, while Asian currencies, particularly the Korean won, exhibited a broad decline. 

A forex spot trader at a bank expressed the view that the USD/INR pair is likely to be bid, citing an overall upward bias in the market and an expectation of limited inflows during the first week of the year.

In December, India markets witnessed increased inflows into equities and bonds, reaching nearly $8 billion and $2 billion, respectively, supported by growing expectations of Federal Reserve rate cuts, possibly in the current quarter. 

Despite these inflows, the Rupee remained nearly unchanged month-on-month, with the RBI's regular intervention contributing to a narrow trading range and decreased volatility.

Traders are hopeful for more pronounced two-sided moves in the interbank market in 2024. The focus this week will be on a range of US economic data, including figures on job openings and nonfarm payrolls. 

Additionally, the release of minutes from the last Federal Reserve meeting in December on Thursday will provide insights into the likelihood of rate cuts.

Investors have already priced in expectations of six Federal Reserve rate cuts this year. 

Market strategist Yeap Jun Rong at IG Asia noted that easing US inflation and resilient economic conditions continue to shape dovish Federal Reserve expectations and hopes for a soft landing.

(With Reuters Inputs)