(Reuters) - The Indian rupee rose to a new one-month high against the U.S. dollar on Tuesday on expectations that the U.S. Federal Reserve could turn less hawkish.
The rupee was quoting at 82.2225 to the dollar by 10:20 a.m. IST, up from 82.36 in the previous session.
We expect a pick up in hedging activity from importers at current levels and probably all the way to 82, if we manage to reach there, a trader at a private sector bank said.
The view on the rupee probably changes if it can move above 82 and only then do we expect importers to hold off, he added.
The dollar's continued struggle since the U.S. jobs report is helping the rupee. The dollar index has dropped almost 2% over the last two sessions on expectations that the Fed is likely to pause its rate hiking cycle after two 25 basis points hikes.
That would take the Fed rate to 4.75-5%. The current implied peak, according to Fed futures, is 4.9%.
Two Fed officials on Monday indicated that the market pricing of the peak was broadly in line with their expectations.
San Francisco Fed President Mary Daly said it was reasonable for rates to be at 5-5.25% and Atlanta Fed chief Raphael Bostic said he expects rates to rise above 5% and not much higher.
The trend of a weakening dollar has picked up steam, with hopes of a Fed pause more "entrenched", said Srinivas Puni, managing director at QuantArt Market Solutions.
"If the (U.S.) CPI comes in lower than expected, we can expect this (downside) leg to extend and take USD/INR towards 81.50 or below," Puni said.
The U.S. consumer price index data for December is due on Thursday. Economists polled by Reuters expect the headline inflation rate to have dropped to 6.5% from 7.1% in November.