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Rupee seen extending declines on higher US yields; dollar at 2-week high
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The Indian rupee is poised to fall on Thursday following a further rise in U.S. Treasury yields amid worries over supply, that pushed the dollar index to the highest in two weeks.
Non-deliverable forwards indicate rupee will open at 83.36-83.38 to the U.S. dollar, compared to 83.3450 on Wednesday.
After touching a high of 83.0250 on Friday, the rupee has fallen for three straight days and logged its worst day in seven weeks on Wednesday.
Unwinding of short dollar/rupee positions, higher-than-usual daily demand from importers and broad weakness in Asian currencies spurred the domestic currency's decline, traders said.
Playing a range of 83.00-83.50 and buying/selling when near to the top or bottom of this "continues to be a strategy that works well", a forex trader at a bank said.
"We will most likely have a new range once the election results are out."
India's national election results will be declared next Tuesday. Exit polls are due over the weekend.
The 10-year U.S. yield is up 16 basis points over two sessions, largely due to concerns over heavy issuances. Two lacklustre debt auctions has raised doubts about demand for U.S. Treasuries.
The 2-year U.S. yield hit the 5% handle in U.S. trading on Wednesday. Futures are pricing in slightly more than one interest rate this year by the Federal Reserve.
The higher U.S. yields dampened the appetite for risk assets and boosted the dollar. U.S. equities dropped and futures indicated to more losses.
The dollar index was hovering at the highest in two weeks. Asian currencies dropped.
The rising U.S. yields will dampen demand for Asian currencies, Lloyd Chan, an analyst at MUFG Bank, noted.
Focus turns to the U.S. weekly initial jobless claims for signs of labor market softening, he said.
KEY INDICATORS:** One-month non-deliverable rupee forward at 83.44; onshore one-month forward premium at 6.75 paisa** Dollar index up at 105.16** Brent crude futures at $83.6 per barrel** Ten-year U.S. note yield at 4.62%
** As per NSDL data, foreign investors bought a net $256.7mln worth of Indian shares on May. 28
** NSDL data shows foreign investors bought a net $33.6mln worth of Indian bonds on May. 28
