Rupee expected to decline on the back of rising US yields
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The Indian rupee is expected to decline at the open on Tuesday, weighed down by a further rise in U.S. Treasury yields amid increasing expectations of Donald Trump winning the U.S. presidency.
Non-deliverable forwards indicate the rupee will open at 83.47-83.48 to the U.S. dollar, compared with 83.4375 in the previous session. Asian currencies were down between 0.1% and 0.5%, with the offshore Chinese yuan dipping below 7.3050 to the U.S. dollar.
In line with Asia, the rupee will "have it difficult" today, a currency trader at a bank said.
"Now we are back to watching the 83.50-83.55 resistance (on dollar/rupee)."
The 10-year U.S. yield climbed to nearly 4.50% in the New York trading session on Monday, its highest level in a month. The increasing likelihood that Trump will prevail in the November election is prompting investors to demand higher yields on U.S. Treasuries.
Following U.S. President Joe Biden's debate performance last week, which was widely criticized, the probability of a Trump presidential win has climbed to 60%, per political betting website PredictIt.
"Market participants (are) pricing in fiscal concerns and higher inflation given potential election outcomes," Morgan Stanley said in a note.
Elections are taking centre stage, with increased focus on outcomes and political uncertainty continuing to drive price action, Morgan Stanley said, referring to the U.S. and French elections.
The jump in U.S. yields comes despite weak U.S. manufacturing data on Monday. The Institute for Supply Management's reading showed U.S. manufacturing contracted for a third straight month in June.
Focus now turns to Federal Reserve Chair Jerome Powell's speech later in the day. After that, the minutes of the last Fed meeting are up on Wednesday and then the monthly U.S. jobs report on Friday.
KEY INDICATORS:** One-month non-deliverable rupee forward at 83.52; onshore one-month forward premium at 7.5 paise** Dollar index up at 105.86** Brent crude futures up 0.3% at $86.8 per barrel** Ten-year U.S. note yield at 4.45%** As per NSDL data, foreign investors bought a net $186.1mln worth of Indian shares on June 28
** NSDL data shows foreign investors bought a net $264.5mln worth of Indian bonds on June 28
