Rupee likely to open flat; U.S. yields, RBI support in focus
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The Indian rupee is likely to open little changed to the U.S. dollar on Tuesday amid a further rise in U.S. yields and on bets that the Reserve Bank of India will continue to support the local currency.
The non-deliverable forward markets indicate that the rupee will open around 82.70-82.75, compared with 82.7225 in the previous session.
With Monday being a U.S. holiday and the dollar index holding around 104, Asian currencies are struggling for direction, which would hold for the rupee as well, a trader at a Mumbai-based bank said.
U.S. yields are the main risk for Asian currencies, probably a bit less for rupee which can count on the RBI's support, the trader said.
The RBI has been likely selling dollars to prevent the rupee from weakening below the 82.90-83.00 levels, several traders have said.
U.S. yields, resuming trade after Monday's holiday, continued to march higher on expectations that sticky inflation and a robust labour market will prompt the Federal Reserve to raise rates more than projected.
"The forecast for the peak Fed rate has been upped by us to 5.25% from 5% following the U.S. non-farm payrolls and inflation readings," DBS Group Research said in a note.
This compares to the 5.1% estimate that Fed officials had projected in December. Two Fed officials have indicated the possibility of the Fed returning to a 50 basis points rate hike.
Futures are pricing in a terminal rate of 5.30% and less than 25 bps of rate cuts in the year.
The two-year Treasury yield rose to 4.68% in Asia, hovering near its highest level since November.
Risk appetite was tepid with U.S. equity futures slightly lowered and Asian gauges mixed.
KEY INDICATORS: ** One-month non-deliverable rupee forward at 82.84; onshore one-month forward premium at 12.5 paise ** USD/INR NSE Feb futures settled on Monday at 82.7425 ** USD/INR Feb forward premium at 1.5 paise ** Dollar index at 103.98 ** Brent crude futures down 0.8% at $83.4 per barrel ** Ten-year U.S. note yield at 3.85%
** SGX Nifty nearest-month futures up 0.1% at 17,877
** As per NSDL data, foreign investors sold a net $89.9mln worth of Indian shares on Feb. 17
** NSDL data shows foreign investors bought a net $55.8mln worth of Indian bonds on Feb. 17
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