Rupee to struggle on weak Asian cues, ongoing dollar demand
The Indian rupee is set to open weaker on Thursday, tracking losses in Asian peers amid higher U.S. Treasury yields and facing likely continued dollar demand for near-term obligations.
The 1-month non-deliverable forward indicated that the rupee will open at 85.36 to 85.38 to the U.S. dollar compared with 85.27 in the previous session.
The rupee’s opening strength has proven fleeting over the past two sessions. After opening firm, it rose to near 84.60 on Tuesday and 85.00 on Wednesday, and lost momentum each time.
Bankers noted consistent dollar buying by a major state-run bank, likely for immediate payments. Foreign banks too were on the bid, with the flows believed to be associated with a large Indian conglomerate.
The rupee’s price action over the past two sessions has defied expectations, a currency trader at a Mumbai-based bank said.
"This kind of price action will likely make interbank players more cautious about taking short positions on the dollar,” he added.
ASIAN CURRENCIES FALL, US YIELDS RISE
Asian currencies slipped on Thursday, while the U.S. 10-year Treasury yield climbed to 4.55%, its highest level in a month. The yield is now over 60 basis points above recent lows and has risen by 35 basis points so far this month.
The move higher in U.S. yields is being driven by expectations that new U.S. tariffs could push prices higher in the coming months, potentially making the Federal Reserve more cautious about cutting interest rates. A decline in safe-haven demand has further contributed to the upward pressure on yields.
Fed officials are assessing how President Donald Trump’s tariffs and ongoing trade policy negotiations will impact inflation and economic conditions.
KEY INDICATORS:
** One-month non-deliverable rupee forward at 85.46; onshore one-month forward premium at 15.32 paise
** Dollar index down at 100.88
** Brent crude futures down 2.1% at $64.7 per barrel
** Ten-year U.S. note yield at 4.54%
** As per NSDL data, foreign investors bought a net $19.4 mln worth of Indian shares on May 13
** NSDL data shows foreign investors sold a net $166.7 mln worth of Indian bonds on May 13
.jpg)
