Rupee to face mild pressure after dollar receives confidence boost
The Indian rupee is poised to open slightly weaker on Wednesday, pressured by a recovery in the struggling U.S. dollar following better-than-expected consumer confidence data.
The 1-month non-deliverable forward indicated the local currency would open in the 85.38-85.40 range, compared to the close of 85.33 in the previous session.
The rupee briefly climbed past the 85 level against the dollar on Monday, where it had to contend with hedging demand for the U.S. dollar.
"It pays to play the 85–86 range on the dollar/rupee pair, regardless of the broader dollar trend," a currency trader at a bank said.
With the pair expected to open near the midpoint of that range, the near-term bias remains broadly neutral, he added.
DOLLAR RECOVERY
The dollar index inched up in Asia, adding to Tuesday's 0.6% advance. The dollar index, down over 8% year-to-date on U.S. trade policy uncertainty and fiscal worries, managed to find support from the improvement in U.S. consumer confidence.
The pullback in U.S. Treasury yields also helped. The dollar, in recent days, has been reacting negatively to the rise in yields that was sparked by worries around the U.S. fiscal deficit.
On Tuesday, long-term U.S. yields declined, mirroring those in Japan.
"The key immediate driver, both from an FX and rates perspective, was news the Japanese Ministry of Finance may adjust debt issuance following a sharp rise in longer-end Japanese yields," MUFG Bank said in a note.
Japan will consider trimming issuance of super-long bonds in the wake of the recent surge in yields for the notes, two sources told Reuters on Tuesday, amid policymakers seeking to soothe market concerns about worsening finances.
KEY INDICATORS:
** One-month non-deliverable rupee forward at 85.55; onshore one-month forward premium at 15 paise ** Dollar index up at 99.7 ** Brent crude futures up 0.6% at $64.5 per barrel ** Ten-year U.S. note yield at 4.46% ** As per NSDL data, foreign investors bought a net $186.9 million worth of Indian shares on May. 26
** NSDL data shows foreign investors sold a net $34.8 million worth of Indian bonds on May. 26
