20-02-2024 08:42 AM | Source: Reuters
Rupee weighs weakness in Asia FX, rising US Treasury yields

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The Indian rupee is expected to broadly struggle on Tuesday on the back of losses in Asian peers and a rise in U.S. Treasury yields on fading hopes of imminent Federal Reserve rate cuts.

Non-deliverable forwards indicate the rupee will open slightly lower to the U.S. dollar from 83.0150 on Friday. Indian foreign exchange and money markets were closed on Monday.

It will be the "usual quiet session" with a "very slight upward bias (on USD/INR)", an FX trader at a bank said.

"We can talk about how there has been a major change in expectations around the Fed. That for the rupee is just academic in that it does not react at all to pretty much anything."

The dollar index inched up and Asian currencies were down 0.1% at 0.4%.

Investors pricing out expectations of a Fed rate cut in March and slashing odds of a reduction in May are helping the dollar.

The dollar index is up 3% year-to-date, boosted by the more than 40-basis points (bps) rise in the two-year U.S. Treasury yield.

U.S. Treasuries have witnessed a sell-off off as investors are now pricing in just 90 bps of Fed rate cuts in 2024, compared with nearly 175-bps rate cuts at the beginning of the year.

The minutes of the Fed's January meeting, due during U.S. trading hours on Wednesday, are expected to reinforce that the central bank is not in a hurry to slash borrowing costs.

Plus, several Fed members are scheduled to speak this week.

"We expect their messaging will convey that the underlying improvement in inflation remains intact and at the same time there is no rush to cut interest rates considering underlying US economic resilience," ANZ said in a note.

Asia risk appetite was mostly poor with Chinese and Hong Kong equities unable to benefit from the larger-than-expected cut the in the reference rate for mortgages.

KEY INDICATORS: ** One-month non-deliverable rupee forward at 83.10; onshore one-month forward premium at 7.5 paisa

** Dollar index up at 104.38 ** Brent crude futures down 0.1% at $83.5 per barrel ** Ten-year U.S. note yield at 4.31%

** As per NSDL data, foreign investors bought a net $137.7 mln worth of Indian shares on Feb. 15

** NSDL data shows foreign investors bought a net $103.4 mln worth of Indian bonds on Feb. 15