Rupee to weaken as high US Treasury yields boost dollar
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The Indian rupee is likely to weaken on Monday as elevated U.S. Treasury yields have kept the dollar well supported against its major peers and emerging market currencies.
Non-deliverable forwards indicate rupee will open at around 83.06-83.08 to the U.S. dollar compared with 82.93 in the previous session.
The rupee is now almost back to the same level it was prior to India's inclusion in JPMorgan's flagship emerging market bond index.
The rupee is likely to hover close to these levels (the opening level) during the session and traders will be watching for any pre-open dollar sales by the Reserve Bank of India (RBI) in the non-deliverable forwards (NDF) market, a foreign exchange trader at a private bank said.
The rupee rallied to near 82.80 on Friday following the news of the JPMorgan inclusion. The inclusion will start in June 2024 and could lead to about $25-30 billion of inflows, analysts said.
The 10-year U.S. Treasury yield was slightly higher in Asia, hovering just below its highest level in one-and-half decade. U.S. growth holding up and the Federal Reserve's focus on inflation has led to a reassessment of expectations regarding rate cuts in 2024, pushing yields higher. The 2-year yield has climbed past the 5% handle.
"Inflation is still too high, and I expect it will likely be appropriate for the (Federal Open Market) Committee to raise rates further," Fed Governor Michelle Bowman said on Friday.
The dollar index was at 105.58 in Asia, not too far from the year-to-date high of 105.88 and on a ten-week weekly winning streak.
Brent crude futures were up 0.26% at $93.51.
"Rupee might see some pressure due to month-end dollar demand from oil importers," said Arnob Biswas, head of foreign exchange research at SMC Global Securities.
KEY INDICATORS:
** One-month non-deliverable rupee forward at 83.08; onshore one-month forward premium at 10 paise ** USD/INR NSE September futures settled at 82.9675 on Friday ** USD/INR September forward premium at 1 paisa ** Dollar index up at 105.58 ** Brent crude futures up 0.3% at $93.5 per barrel ** Ten-year U.S. note yield at 4.46%, ** As per NSDL data, foreign investors sold $225.5mln worth of Indian shares on a net basis on Sep. 21
** NSDL data shows foreign investors sold a $29.8mln worth of Indian bonds on a net basis on Sep. 21
