The Indian rupee appreciated more than 1.3 percent on November 11 morning, its biggest jump in four years, tracking gains in Asian peers after softer-than-expected US consumer price inflation boosted the odds of a slower rate hike by the Federal Reserve.
The domestic currency opened and touched a high of 80.69 a dollar. At 9.34 am, the currency was trading at 80.74 a dollar, up 1.31 percent, its highest gain since December 18, 2018 from its previous close of 81.81.
US headline CPI print came in at 7.7 percent year on year (0.4 percent month on month) against expectations of 7.9 percent YoY (0.6 percent MoM).
The softer CPI print resulted in markets paring back expectations of the US Fed funds rate range to 4.75-5 percent from 5-5.25 percent. With inflation showing signs of cooling off, the expectation is that the Fed is likely to tone down its hawkishness, according to IFA Global Research Academy.
"Surely, it sent a bad message to the USD bulls, and thus Asian & EM currencies are in reversal mode,” said CR Forex in its note.
"First, the NFP data drove a rally in equities and tanked the USD, then the elections, the current is due the CPI, and a new reason will be devised tomorrow. Well, a shift in the mood can be seen as the market is contriving more reasons to go up than to go down. If so then probably that is where it wants to go structurally despite no major shift in the fundamentals in the past 10 days", CR Forex report added.
A relief rally breezed through most Asian currencies as a dovish Fed would mean that Asian bonds and equities won’t lose their appeal against that of the US.
The interest rate differential between India and the US is at its lowest in 12 years. Dollar inflows into local bonds have been reduced to a trickle for several months now as the interest rate gap has narrowed.
The dollar index’s sharp fall overnight has helped sentiment as well. Overnight, the dollar index saw its worst decline in 13 year. The index closed at 2 percent lower, its biggest fall since March 2009.
The rupee has gained for four out of the past five sessions. Since September 11, the rupee rose 2.5 percent in this period. This gain was also due to continued buying by foreign investors in local equity markets. Since October 20, FIIs have bought $3.28 billion in the equity markets.
The 10-year bond yield dropped over 10 basis points to 7.25 percent from its previous close of 7.35 percent. Bond yields and prices move in opposite directions.
(With agency inputs)
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