India rupee, government bonds look for clarity on size of Fed cut
By Dharamraj Dhutia and Nimesh Vora
MUMBAI, Sept 9 (Reuters) -The Indian rupee and the government bonds this week will be hoping for clarity on the size of the the Federal Reserve's interest rate cut it will deliver next week after a key U.S. jobs report failed to settle that debate.
The rupee fell 0.1% last week to settle at 83.9475 versus the dollar, staying above the key level of 84 largely due to intervention by the Reserve Bank of India. The rupee last week was in a 83.8450-83.9850 range, and "most likely will be the same" this week, a currency trader at a bank said.
Data released on Friday showed U.S. employers added less number of jobs than was expected in August. However, the unemployment rate dipped to 4.2%.
Overall for investors, the report did not settle the uncertainty on the size of the rate cut the Fed will opt for at next week's meeting.
"There was enough in the report to keep markets guessing on whether the Fed will cut by 25 bps or 50 on 18 September," ING Bank said in a note.
"Lead indicators suggest further weakness lies ahead, and we believe the Fed will go for a 50 bps move, but it’s a close call," it added.
Fed policymakers on Friday signaled they are ready to kick off a series of interest rate cuts.
The jobs data points have become more prominent after Fed Chair Powell recently indicated that he was getting worried about the labour market.
Investors will be now looking at the U.S. inflation data due this Wednesday for more cues on the Fed rate cut cycle.
BONDS
India's 10-year government bond yield IN071034G=CC, which ended little changed for the third straight week at 6.8542%, is expected to be in a 6.82%-6.90% band this week.
Bond yields have been stuck over the last few weeks as traders continue to await strong triggers for a break of the 6.85% level on the benchmark.
Since the last five weeks, the benchmark bond yield has moved in a 6.84%-6.89% zone.
"We could finally see a break of 6.85% on the downside, but still major fall may not be witnessed," VRC Reddy, treasury head at Karur Vysya Bank, said.
Still, the benchmark bond yield is unlikely to dip below 6.80% as India's policy rate is at 6.50%, and a domestic rate cut is still some time away, traders said.
KEY EVENTS:
** U.S. August CPI and core CPI inflation: Sept. 11, Wednesday (6:00 p.m. IST)(Reuters poll: 0.2% on-month)
** India July industrial production - Sept. 12, Thursday (5:30 p.m. IST)
** India August CPI inflation - Sept. 12, Thursday (5:30 p.m. IST)(Reuters poll: 3.64%)
** U.S. initial weekly jobless claims week to Sept. 2 - Sept. 12, Thursday (6:00 p.m. IST)
** U.S. August PPI machine manufacturing - Sept. 12, Thursday (6:00 p.m. IST)
** India August WPI inflation - Sept. 13, Friday (12:00 p.m. IST)(Reuters poll: 1.76%)
** U.S. August import prices - Sept. 13, Friday (6:00 p.m. IST)
** U.S. September prelim U Mich sentiment - Sept. 13, Friday (7:30 p.m. IST)
Reporting by Dharamraj Dhutia and Nimesh Vora; Editing by Mrigank Dhaniwala and Rashmi Aich
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