MUMBAI, April 12 (Reuters) - The Indian rupee will drop at open on Friday on rising odds that higher U.S. inflation will lead to the Federal Reserve delaying rate cuts, spurring a jump in the dollar and U.S. Treasury yields.
Non-deliverable forwards indicate the rupee will open at 83.32-83.34 to the U.S. dollar, compared with 83.1850 on Wednesday. India's financial markets were closed on Thursday.
The dollar index climbed past 105.50 in the New York session and the two-year U.S. yield topped 5%, both the highest since mid-November. Asia currencies extended losses.
While the rupee "will no doubt have a problem," the odds that it declines past 83.40 are quite low, a FX trader at a bank said.
It's most likely that the rupee "leisurely" recovers following a dip at the open, he said.
Investors are now pricing in less than two Fed rate cuts this year, compared with three before a third straight higher-than-expected reading on U.S. consumer inflation. The chances of a cut this quarter are now below 25%.
Traders had dialled back their expectations even before the inflation data, thanks largely to the robust U.S. economy and its labour market. At the beginning of this year, six to seven rate cuts were discounted this year.
"The market has consistently been too hasty in anticipating Fed cuts this cycle," DBS Bank said in a note.
Amid resilient growth and sticky inflation "it is plausible to argue that the Fed may not need to cut this year", it said.
KEY INDICATORS:
** One-month non-deliverable rupee forward at 83.38; onshore one-month forward premium at 6.75 paisa
** Dollar index at 105.25
** Brent crude futures up 0.7% at $90.4 per barrel
** Ten-year U.S. note yield at 4.56%
** As per NSDL data, foreign investors bought a net $1,023.4 million worth of Indian shares on April 8
** NSDL data shows foreign investors bought a net $66.8 million worth of Indian bonds on April 8 (Reporting by Nimesh Vora; Editing by Savio D'Souza)
