The Indian rupee is expected to decline slightly on Tuesday, bogged down by the rise in U.S. yields before the key U.S. consumer inflation data.

Non-deliverable forwards indicate the rupee will open at around 81.82 to the U.S. dollar, down slightly from 81.7950 in the previous session.

With U.S. yields higher and Asian currencies mostly weak, there will be a slight upward bias (on the USD/INR), a spot trader said.

"Having said that, decent inflows and lack of volatility will mean that nearby resistance of 81.90-81.95 is not under threat."

The two-year U.S. yield climbed back to near 4% overnight and the 10-year yield reached 3.5%. A resilient U.S. labour market along with optimism that the worst stresses in the U.S. regional banking system may be over is reducing the appeal for Treasuries.

U.S. yields rose despite weak data. Wholesale trade sales fell 2.1% month-on-month in March. Wholesale inventories were unchanged from the previous month but down 9.1% on-year.

U.S. inflation data due Wednesday is the key event for yields and the dollar. Economists polled by Reuters expect the core consumer inflation rate to rise 0.4% month-on-month.

The data comes after the Federal Reserve last week signalled a pause contingent on how economic data evolves. Heading into the inflation print, there is a near certainty that the Fed will not hike rates in June, according to interest rate futures.

Following the likely pause, investors are looking to assess when the Fed will begin cutting rates. Futures indicate a high possibility of a rate cut in September.

The market is currently pricing around 20 basis points of interest rate cuts by September and 66 bps by December, ING Bank noted.

Asian currencies were mostly down, falling up to 0.4%. The dollar index was slightly higher, while Asian equities were rangebound.

 

KEY INDICATORS: ** One-month non-deliverable rupee forward at 81.92; onshore one-month forward premium at 11 paise ** USD/INR NSE May futures settled on Monday at 81.85 ** USD/INR May forward premium at 7 paise ** Dollar index inches up to 101.50 ** Brent crude futures down 0.3% at $76.8 per barrel ** Ten-year U.S. note yield at 3.5% ** SGX Nifty nearest-month futures down 0.1% at 18,330 ** As per NSDL data, foreign investors bought a net $471.4mln worth of Indian shares on May 5

** Data shows foreign investors bought a net $94.4mln worth of Indian bonds on May 5 (Reporting by Nimesh Vora; Editing by Sohini Goswami)