Rupee poised for gains amidst potential US labour market slowdown

Rupee poised for gain: The Rupee is poised to benefit from the decline in US Treasury yields, indicating a slowdown in the American labour market. However, concerns surrounding the outcome of the elections are causing Dollar outflows, creating a sense of uncertainty.

Forecasts from non-deliverable forwards suggest that the Rupee INR=IN will commence trading at 83.48-83.50 against the US Dollar, compared to the previous session's 83.5025.

Election jitters spark withdrawals

Apprehensions about the Indian election results, scheduled for June 4, have prompted foreign investors to withdraw funds from equities, leading to a three-week low in the benchmark Nifty 50 index. Foreigners have withdrawn $2 billion from Indian equities so far in May.

On Thursday alone, provisional exchange data reveals that they withdrew over $800 million.

Remarkably, the Rupee has not significantly reacted to this election uncertainty, which can be largely attributed to the Reserve Bank of India's management of the currency, according to an FX trader at a bank.

"We may observe the Rupee hovering around 83.50, with a slight upward bias for the USD/INR pair."

Yield dip signals softening

The drop in US Treasury yields on Thursday followed an increase in initial jobless claims, indicating a potential softening in the labour market. This trend follows data showing the smallest increase in non-farm payrolls in six months, suggesting a possible slowdown in labour market momentum.

While it's cautioned not to draw extensive conclusions from a single set of data, forthcoming data will be closely monitored for further signs of labor market softening, noted ANZ Bank in a report.

Additionally, investors are awaiting key US inflation data scheduled for release next Wednesday. San Francisco Fed President Mary Daly expressed "considerable" uncertainty about the direction of inflation in the coming months, though she maintains confidence that price pressures continue to moderate.

(With Reuters Inputs)