Middle East respite for rupee amid equity outflows; bond yields to track US peers
By Dharamraj Dhutia and Jaspreet Kalra
MUMBAI, Oct 28 (Reuters) -The Indian rupee is likely to be take a bit of support from the abatement in the Middle East risk in the face of persistent equity outflows and dollar strength, while government bond yields will track the move in U.S. Treasury yields.
The rupee INR=IN closed at 84.08 against the U.S. dollar on Friday, nearly unchanged for the day as well as the week. The rupee has fared better than its Asian peers over October, largely on account of regular interventions by the Reserve Bank of India amid foreigners taking money out of local equities.
Overseas investors have pulled out more than $10 billion from local stocks in October so far.
For now, the rupee "appears to be glued" to a narrow range, which is unlikely to change in the near term, said Dilip Parmar, a foreign exchange research analyst at HDFC Securities.
The rupee will receive a bit of help from the plunge in oil prices on Monday after Israel's weekend strike on Iran bypassed oil or nuclear targets.
The U.S. personal consumption expenditure (PCE) inflation reading and employment data on Thursday and Friday, respectively, will be in focus to gauge the future path of the Federal Reserve's policy rates.
Meanwhile, India's 10-year benchmark government bond yield IN071034G=CC closed at 6.9495% on Friday, up 3 basis points for the week, mirroring the rise in the prior week.
Traders expect the yield to be in the 6.80%-6.88% band this week, with no major triggers in sight and the focus remaining on its U.S. peers as well as foreign activity.
There may not be any major upward pressure on yields as there is no central government debt supply scheduled for the week, traders said.
Meanwhile, the 10-year U.S. yield US10YT=RR stayed around 4.20%, as traders braced for a less aggressive Fed rate cut path and the outcome of the U.S. presidential elections.
Foreign investors and foreign banks have remained net sellers of government bonds so far this month, amid caution ahead of the elections and the next Fed meeting, both due in the first week of November.
"In the event of a Donald Trump presidency, the impact will likely be inflationary and therefore, bad for bonds, as the Fed will most likely be unable to cut as much as what the market has priced in currently," said Matthew Kok, portfolio manager, Asian Fixed Income, Eastspring Investments.
"This means that the market will start pricing out rate cuts, which in turn means higher yields globally."
KEY EVENTS:
U.S.
** October consumer confidence - Oct. 29, Tuesday (7:30 p.m. IST)
** Jul-Sept advance GDP - Oct. 30, Wednesday (7:00 p.m. IST) (Reuters poll 3%)
** Initial weekly jobless claims week to Oct. 21 - Oct. 31, Thursday (6:00 p.m. IST)
** September personal consumption expenditure, core PCE index - Oct. 31, Thursday (6:00 p.m. IST)
** October non-farm payrolls data and unemployment rate - Nov 1, Friday (6:00 p.m. IST)
** October ISM manufacturing PMI - Nov 1, Friday (7:30 p.m. IST)
** October S&P global manufacturing PMI final - Nov 1, Friday (8:15 p.m. IST)
India
** September fiscal deficit data - Oct 31, Thursday (3:30 p.m. IST)
** September infrastructure output data - Oct 31, Thursday (5:30 p.m. IST)
** HSBC October manufacturing PMI - Nov 1 Friday (10:30 a.m. IST)
Reporting by Dharamraj Dhutia and Jaspreet Kalra; Editing by Savio D'Souza and Rashmi Aich
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