Indian Rupee's Response to Dollar's Recovery Amid US Economic Data

In the financial landscape, the Indian rupee is poised for minimal change on Wednesday, influenced by a rebound in the US dollar despite a dip in US Treasury yields following disappointing job opening data for October, the largest economy globally.

Forecasts from non-deliverable forwards suggest the rupee's opening around 83.36-83.37, indicating marginal movement from its previous close at 83.3825.

The 10-year US Treasury yield experienced a decline to 4.16% in New York overnight, triggered by reports revealing a drop in job openings to 8.73 million in October, the lowest in over two and a half years. This data, reflecting weaker economic conditions, has led to speculations among investors about a potential rate cut by the US Federal Reserve as early as March.

Despite these global indicators, the rupee's behavior remains somewhat detached from fundamental factors, according to a foreign exchange trader at a private bank. "It is just people guessing what would be the Reserve Bank of India’s (RBI) response and actual RBI action."

To prevent the rupee's decline, the RBI likely intervened by selling US dollars on Tuesday, as noted by traders.

Interestingly, the rupee hasn't capitalized on increased equity inflows. Notably, overseas investors injected over $2.5 billion into Indian equities in December, surpassing the $1.08 billion recorded in November, according to NSDL data.

While the dollar index climbed to 103.97, showcasing continued recovery after a recent decline, factors such as dovish comments from a European Central Bank official and safe-haven demand amid the Israel-Hamas conflict have supported the dollar's resurgence, as outlined in a note by MUFG Bank.

Investors are now eagerly anticipating further insights into the US labor market through upcoming jobless claims data on Thursday and the pivotal non-farm payrolls report scheduled for release on Friday.