Rupee Rebounds From All-Time Low Against Dollar After April Inflation Data

The rupee recovered from an all-time low against the dollar, and bond yields rose, after India's inflation rate spiked to an eight-year high.

At the interbank foreign exchange, the rupee opened at 77.35 against the dollar, then gained further ground to quote at 77.31 -- registering a rise of 19 paise from the last close. On Thursday, the rupee plunged 25 paise to close at its lifetime low of 77.50 against the US currency.

Forex traders said the Indian Rupee could see range-bound trade against the US dollar as broad dollar strength could offset losses from a rate hike by the Reserve Bank of India next month due to rising domestic inflation.

India's headline inflation galloped for a seventh straight month to touch an eight-year high of 7.79% in April on rising food and fuel prices, raising the odds of an RBI repo rate hike.

With factory output measured by the Index of Industrial Production at 1.9% in March, some economists feel that another rate hike -- close on the heels of a 40 basis points increase last week -- may slow economic growth. "A likely more hawkish policy shift from RBI and expectations of intervention will possibly support the rupee this Friday," said Sriram Iyer, senior research analyst at Reliance Securities.

However, weak Asian and emerging market peers -- Yuan touched a low of 6.8372 against the Dollar -- will cap appreciation bias. Additionally, crude oil prices continued to strengthen and will cap appreciation bias.

The dollar index, which gauges the greenback's strength against a basket of six currencies, was trading 0.19% lower at 104.65.