India rupee to gauge portfolio flows, bond yields to eye US peers
By Dharamraj Dhutia and Jaspreet Kalra
MUMBAI, Nov 25 (Reuters) -The Indian rupee will track portfolio flows this week as a global equity index rejig comes into effect, amid foreign portfolio outflows from local stocks and bonds, while government bond yields will track U.S. Treasuries.
The rupee INR=IN closed stronger at 84.4450 against the U.S. dollar on Friday after hitting a record low of 84.5025 earlier in the session.
The rebalancing of MSCI's equity indexes, effective after the markets close on Monday, is expected to attract $2.5 billion of passive inflows into Indian stocks, according to estimates by Nuvama Alternative & Quantitative Research.
The inflow may aid the rupee slightly as the currency faces headwinds from a stronger dollar and sustained foreign selling of Indian debt and equities.
The "trend on the dollar-rupee pair is biased towards a gradual rise but the pair may see a slight pullback this week," Dilip Parmar, a foreign exchange research analyst at HDFC Securities said.
Parmar expects the rupee's potential gains to be capped near 84.20.
The dollar index rose to a two-year peak on Friday, logging its third consecutive weekly gain, while most Asian currencies logged weekly losses.
U.S. personal consumption expenditure (PCE) data, due Wednesday, will also be in focus this week to gauge the future path of Federal Reserve policy rates and its impact on the dollar.
India bond yields rose on Friday, with the benchmark yield ending 2 bps higher at 6.8470%, as the central bank reiterated concerns over inflation, while U.S. Treasury yields were also elevated.
Traders expect the benchmark bond yield to remain in the 6.82%-6.90% range this week, and track U.S. peers. Apart from the U.S. core PCE data, traders will also keep a close eye on the domestic July-September growth data, due Friday.
A Reuters poll of economists pegged India's economic growth at 6.5%.
This would be the last major data point before the Reserve Bank of India's monetary policy decision on Dec. 6.
Traders will also focus on foreign investors and banks' appetites, as they have been selling Indian government bonds over the last few weeks.
Overseas investors have net sold bonds worth around $1.25 billion and foreign banks have sold debt worth around $2 billion so far in November.
These foreign sellers may not be in a hurry to return as the rupee is expected to remain under pressure and interest rate cuts seem to be delayed, Nitin Agarwal, head of trading at ANZ India, said last week.
The RBI may not want to squander away what they have achieved on the inflation-targeting framework by easing too soon, ANZ India's Agarwal said.
"Early 2025 is a better time to take a call on a rate cut, as inflation should have moderated, and any growth slowdown would become more prominent."
KEY EVENTS:
** U.S. November consumer confidence - Nov. 26, Tuesday(8:30 p.m. IST)
** U.S. October new home sales units - Nov. 26, Tuesday(8:30 p.m. IST)
** U.S. October durable goods - Nov. 27, Wednesday (7:00 p.m. IST)
** U.S. July-September second GDP estimate - Nov. 27, Wednesday (7:00 p.m. IST) (Reuters poll 2.8%)
** U.S. initial weekly jobless claims week to Nov. 18- Nov. 27, Wednesday (7:00 p.m. IST)
** U.S. October personal consumption expenditure, core PCE index - Nov. 27, Wednesday (8:30 p.m. IST)
** India October fiscal deficit - Nov. 29, Friday (3:30 p.m. IST)
** India October infrastructure output - Nov. 29, Friday (5:30 p.m. IST)
** India July-September growth data - Nov. 29, Friday (5:30 p.m. IST)(Reuters poll - 6.5%)
Reporting by Dharamraj Dhutia and Jaspreet Kalra; Editing by Eileen Soreng
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