Rupee Gains To 82.23 As Dollar Takes A Breather, But A Volatile Session Expected

The rupee gained early on Friday as the dollar took a breather after a volatile overnight session as traders were straddled between red-hot US inflation data pointed to more aggressive interest rate hikes and a buying sentiment triggered by oversold stocks and oversold currencies. 

PTI said the rupee rose 3 paise to 82.21 against the US dollar in early trade.

Bloomberg showed the rupee last at 82.2325 per dollar after opening at 82.2738, compared to its previous close of 82.3500.

Reuters reported that the USD/INR 1-month non-deliverable forward jumped to 83 initially, but similar to the dollar index, retreated to near 82.50.

The rupee will open near its weekly high of around 82.15-82.17, and it "would not be a surprise" if the initial uptick does not sustain, a trader at a Mumbai-based bank told Reuters. The trader also pointed to likely dollar-buying interest from importers.

Oil prices reversed earlier losses and inched up in early Asia trade on falling diesel inventories even as Saudi Arabia and the United States continued to argue about the Organization of the Petroleum Exporting Countries' intentions to cut production.

After a strong sell-off on Thursday, Wall Street stocks made a remarkable comeback. They closed significantly higher in an extremely volatile session as investors rushed back into riskier bets, with Asian stocks and currencies mirroring gains.

"Asian markets will probably play catch-up in early trading today, but after that, they might do better to take a more cautious stance ahead of the weekend," said Robert Carnell, Regional Head of Research for Asia-Pacific at ING.

On Thursday, US core inflation, which excludes food and fuel prices, exceeded expectations and came in at 6.6 per cent, the largest annual increase in 40 years, driven primarily by significant price increases in the services sector.

Soon after the report's release, the dollar strengthened against its key competitors as Treasury rates increased and US equities futures fell.

Although the Treasury yield dropped from highs, US equities futures and the dollar had an intraday turnaround.

Analysts explained the unexpected rebound by position changes and the probability that the loss in US stocks was exaggerated.

"Equity investors seemingly decided that a stronger US inflation still doesn't negate expectations of sharp declines in prices ahead," Rodrigo Catril, Senior FX Strategist at NAB, told Reuters.

"That might be true, but there is still a great deal of uncertainty about how quickly this decline will unfold, and for the Fed, this decline needs to be significant. A fall from 6 per cent to 4 per cent won't be enough. The Fed wants assurances that core CPI will head down to 2 per cent, and we are still a long way from that goal," he added.

The dollar index dropped in Asia trading to 112.22 after having reached almost 114 immediately into the data.

The gains in risk assets, though, may swiftly reverse as investors come to terms with the fact that soaring US inflation will probably result in higher interest rates for a longer period, hastening a worldwide recession.

The temporary fall in the dollar was partly driven by the sharp recovery in Wall Street stocks, Commonwealth Bank of Australia strategist Carol Kong told Reuters. "I doubt the weaker dollar will sustain...the dollar is the safe-haven currency currently."