Rupee may extend losses despite RBI's move to hold the line at 90
The Indian rupee is expected to come under more pressure on Tuesday, with the rise in U.S. Treasury yields adding to the strain a day after the Reserve Bank of India's intervention prevented the currency from slipping past 90.
The 1-month non-deliverable forward indicated the rupee will open in the 89.62-89.64 range versus the U.S. dollar, after settling 0.1% lower at 89.5475 on Monday.
The rupee's slide picked up pace on Monday after it broke past 89.50, a level the RBI had previously defended, triggering small stop-loss orders and a burst of accelerated dollar buying from importers.
That combination pushed the rupee to a record low of 89.7575, extending recent weakness. Bankers said stepped-up RBI intervention ultimately halted the slide, preventing a break past the key 90 level and curbing a deeper selloff.
The rupee's drop on Monday stood out all the more because it came despite India's stellar gross domestic product (GDP) print and on a day when Asian cues were not exerting downward pressure.
The rupee "reaction yesterday just reinforces how skewed flows currently are", a currency trader at a private sector bank said.
"It often feels like the RBI is the only real seller (of dollar/rupee) out there — if they step away, it just runs."
ASIA WOBBLES, YIELDS PUSH HIGHER
U.S. Treasury yields climbed on Monday, tracking a jump in Japanese rates amid traders ramping up bets that the Bank of Japan (BOJ) will raise interest rates this month.
Japan's two-year yield, the maturity most sensitive to BOJ policy, topped 1% for the first time since 2008, while the 10-year hit a 17-year high.
"Our economists believe the statement further increases the likelihood of a December hike, in line with their prior expectations," Morgan Stanley said in a note.
Asian currencies were mostly lower on Tuesday.
KEY INDICATORS:
** One-month non-deliverable rupee forward at 89.80; onshore one-month forward premium at 15 paise
** Dollar index at 99.40
** Brent crude futures at $63.2 per barrel
** Ten-year U.S. note yield at 4.09%, rose 8 basis points on Monday** As per NSDL data, foreign investors sold a net $390.1 million worth of Indian shares on Nov 28
** NSDL data shows foreign investors sold a net $35.4 million worth of Indian bonds on Nov 28
