Rupee to inch up ahead of key US inflation data

The Indian rupee was likely to open marginally higher against the dollar on Wednesday ahead of the U.S. inflation data, which analysts say will influence the Federal Reserve's rate decision at its next meeting.

The non-deliverable forwards indicate the rupee will open at around 82.06-82.10 to the U.S. dollar compared with 82.12 in the previous session.

Following the "against-the-trend" push above 82 (for USD/INR) on Tuesday, likely due to an outflow, the bias is slightly on the upside, a spot trader said. Trading interest and positions are likely to be light because of the overnight risk, he said.

U.S. core CPI (consumer price index), due later in the day, likely rose by 0.4% month-on-month in March, according to economists polled by Reuters. That would be down from the 0.5% increase in February, but well above the pace required for bringing annual inflation to Fed's 2% target. Headline inflation is expected to rise 0.2%.

"More attention will revolve around core inflation," Yeap Jun Rong, market analyst at broker IG said.

A higher-than-expected inflation print will lay the foundation for another 25 basis-point hike with "the hawkish recalibration in rate expectations likely to support higher U.S. dollar," Yeap added.

Heading into the data, investors are pricing in a 70% chance that the Fed will raise rates by 25 bps points at the May meeting.

The India inflation data is due a few hours before the U.S. number. India's consumer inflation rate likely softened in March to 5.80%, dipping below the Reserve Bank of India's upper tolerance limit of 6% for the first time this year, according to a Reuters poll.

The data will follow the RBI's surprise move last week to hold its key interest rate at 6.50%.

"India inflation is way less important (than U.S.) for how the rupee will open tomorrow," the spot trader said.

KEY INDICATORS: ** One-month non-deliverable rupee forward at 82.20; onshore one-month forward premium at 13.5 paisa ** USD/INR NSE April futures settled on Tuesday at 82.1675 ** USD/INR April forward premium at 5.5 paise ** Dollar index little changed at 102.08 ** Brent crude futures up 0.1% at $85.7 per barrel ** Ten-year U.S. note yield at 3.43%, 2-year hovering just above 4% ** SGX Nifty nearest-month futures up 0.1% at 17,801 ** As per NSDL data, foreign investors bought a net $168.9mln worth of Indian shares on Apr. 10

** NSDL data shows foreign investors bought a net $93.5mln worth of Indian bonds on Apr. 10