Rupee biased to the upside on expected equity inflows, Yuan's rally

Rupee may recover: The Indian Rupee may recover more on Friday, helped by the rally in the Chinese yuan and anticipated equity inflows spurred by domestic equities' higher weightage in MSCI's index. The one-month non-deliverable forward indicated the Rupee will open flat-to-marginally higher to the US Dollar, compared with its close of 83.87 on Thursday, having gained about 0.1 per cent.

In the context of how challenging it has been for the Rupee, "yesterday's move was decent", a currency trader at a bank said.

India's increased weightage in MSCI's emerging market index, effective Friday, is expected to lead to inflows of up to $3 billion, per Nuvama Alternative and Quantitative Research. "I think the inflows and that 84 remains a big hurdle (for dollar/rupee to conquer) lead to small short positions," the trader said.

He expects a large of the inflows should materialise on the day, lifting the rupee, potentially to 83.80.

YUAN CLIMBS

The onshore Yuan rose past 7.10 to its highest level this year. The rally came ahead of the US core PCE data for July due later in the day and China's official NBS manufacturing PMI data for August out on Saturday.

The US inflation data should lead the markets to further align their expectations of a 25 basis points cut in September, as telegraphed by the Federal Reserve, DBS Research said in a note.

However, more than inflation, investors consider labour market data a better gauge for the pace of the Fed's rate-cutting cycle.

In that context, US weekly initial jobless claims data on Thursday was largely in line with expectations. The most important data point, however, will be the monthly non-farm payrolls report next Friday.