Indian rupee to face renewed pressure as US yields climb
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The Indian rupee, having witnessed slight relief late last week, is likely to come under renewed strain on Monday on the back of a further rise in U.S. Treasury yields.
The 1-month non-deliverable forward indicate that the rupee will open at 84.82-84.83 to the U.S. dollar compared with its previous close of 84.7875.
The local currency inched up 0.1% on Friday, thanks to likely dollar sales by the central bank and possible inflows, according to traders.
"In the context" of how persistent the pressure has been on the rupee, Friday's recovery "was respectable", a currency trader at a bank said.
That recovery will have to contend with "similar forces" of "an environment that favours the dollar", he said.
Asian currencies began the week on the defensive, pressed by U.S. yields. The 10-year U.S. yield rose seven basis points on Friday and 25 bps over the week.
Worries over possible inflationary pressures and the U.S. deficit on account of U.S. President-elect Donald Trump's policies are factors being cited by analysts that may be undermining demand for Treasuries.
This week, the focus will be on the Federal Reserve's monetary policy decision due on Wednesday. With a 25 bps rate cut fully been priced in, what investors will be watching for is the outlook for next year.
"With inflation remaining sticky, and President-elect Trump looking to strengthen the U.S. growth performance, the Fed is set to signal a more cautious policy easing profile for 2025," ING Bank said in a note.
The bank reckons the Fed will signal only three rate cuts in 2025 compared to four previously.
Meanwhile, India's forex reserves India's foreign exchange reserves dropped to multi-month lows amid dollar sales by the central bank to support the rupee. The Reserve Bank of India's fx intervention is being challenged by domestic and global headwinds.
KEY INDICATORS:
** One-month non-deliverable rupee forward at 85.00; onshore one-month forward premium at 16.5 paisa
** Dollar index at 106.85
** Brent crude futures down 0.2% at $74.3 per barrel
** Ten-year U.S. note yield at 4.3920%
** As per NSDL data, foreign investors sold a net $419.9 mln worth of Indian shares on Dec. 12
** NSDL data shows foreign investors sold a net $35.6 mln worth of Indian bonds on Dec. 12
