Rupee to inch up, traders await cues from Powell on interest rate cuts

The Indian rupee is expected to open marginally higher on Friday, with traders awaiting possible cues from Federal Reserve Chair Jerome Powell on the extent and timing of interest rate cuts.

The 1-month non-deliverable forward indicated that the rupee will open at 83.92 to the U.S. dollar compared with the close of 83.9525 in the previous session.

For a large part of this month, the rupee has been holding near 84, except for a brief respite when it managed to hit 83.75.

The Reserve Bank of India has intervened regularly to make sure the local currency does not weaken past 84.

"The 84-handle will definitely be at risk on Monday morning, depending on the way markets react to Powell's comments," a currency trader at a bank said.

"I doubt the RBI will be that resolute in defending 84 on Monday if post Powell's comments, we see the dollar ripping higher."

The rupee has been a laggard in Asia, not benefitting from the increased confidence of the Fed cutting rates at each of the remaining three meetings this year.

Powell, in his speech at Jackson Hole later in the day, is expected to reinforce that interest rates are coming. Powell's comments at Jackson Hole in the past have provided cues on where rates are headed.

We expect Powell to express "a bit more confidence" in the inflation outlook and to put a bit more emphasis on downside risks in the labour market than in his press conference after the July Fed meeting, Goldman Sachs said in a note.

"A speech along these lines would be consistent with our forecast of a string of three consecutive 25 bps cuts in September, November, and December," the investment bank said.

Investors are more optimistic than Goldman Sachs, pricing in a total of 100 basis rates from September to December.