India rupee to struggle on US yield concerns; odds of record low seen rising
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The Indian rupee is expected to be under pressure on Thursday after long-maturity U.S. Treasury yields climbed to multi-year highs on expectations that rates will remain high for long.
Non-deliverable forwards indicate the rupee will open at around 83.26-83.27 to the U.S. dollar compared with 83.2575 in the previous session and within a whisker of the 83.29 record low.
The Reserve Bank of India has over the last several days intervened to prevent the rupee from falling to a lifetime low.
"Looking at how U.S. yields keep marching higher and how oil prices are, you would have to at least consider the possibility that the RBI will relent," a forex trader at a Mumbai-based bank said.
"From what I have seen this week, odds of a new low (on rupee) are now higher."
The 10-year U.S. Treasury yield rose to 4.9550% in Asia, the highest in sixteen years. Federal Reserve officials once again signalled their preference for keeping interest rates high which alongside robust U.S. economic momentum is prompting investors to pile out of Treasuries.
Reiterating a common talking point among policymakers, New York Fed President John Williams said the central bank needs a restrictive monetary policy for a while to cool inflation.
Futures traders have lowered bets on the Fed cutting rates late next year to less than two from a previous four, while extending a target rate projection of 5% or more through to September 2024..
"Resilient US economic data brought the high-for-longer rate outlook back into the limelight lately," Singapore-based Yeap Jun Rong, market strategist at IG Asia, said, referring to the better-than-expected U.S. retail sales data released on Tuesday.
KEY INDICATORS: ** One-month non-deliverable rupee forward at 83.33; onshore one-month forward premium at 7 paise ** Dollar index up at 106.56 ** Brent crude futures at $91 per barrel ** Ten-year U.S. note yield at 4.95% ** As per NSDL data, foreign investors bought a net $70.9mln worth of Indian shares on Oct. 17
** NSDL data shows foreign investors bought a net $17.9mln worth of Indian bonds on Oct. 17
