Higher US yields to squeeze rupee, while RBI protects 84/USD

Reuters

Higher US yields to squeeze rupee, while RBI protects 84/USD

Oct 10, 2024 at 3:02 am GMT

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By Nimesh Vora

MUMBAI, Oct 10 (Reuters) - The Indian rupee will be pressured by the rise in U.S. Treasury yields and the dollar on Thursday amid mounting expectations that the Federal Reserve could deliver a smaller rate cut at its November meeting.

The one-month non-deliverable forward indicated that the rupee INR=IN will open barely changed from 83.9625 in the previous session. The rupee has been in a narrow six-paisa range this week and has largely avoided slipping past the84 handleon back of the Reserve Bank of India's (RBI)help.

"For whatever reason, the RBI is insistent that they do not want to see 84. Till the time they decide otherwise, you look for mini dips and rallies to trade on," a currency dealer at a bank said.

The fact that therupee is "holding on here is commendable, though it isnot surprising", a treasury official at a bank said.

The RBI has supportedthe currency in withstandingequity outflows, volatility in oil prices, and the resurgent dollar.

The dollar index =USD is near itshighest level in nearly two months, boosted by bets that the Fed will at the most cut rates by 25 basis points at next month's meeting. Investors have now fully priced out a repeat of the 50 bps cut that the Fed delivered in September, largely due to a robust U.S. jobs report.

The minutes of the Fed's September meeting encouraged bets of a smaller rate cut. They indicated that some policymakers reckoned a 25 bps cut would be more appropriate.

U.S. yields rose on Wednesday, with the 10-year now at the highest since late July. The focus now shifts to U.S. consumer inflation data due later in the day.

"A hot inflation print today, and the market will throw increased doubts that we see a cut play out at all in November," Chris Weston, head research at broker Pepperstone, said in a note.

KEY INDICATORS:

** One-month non-deliverable rupee INRNDFOR= forward at 84.08; onshore one-month forward premium at 12 paise

** Dollar index =USD at 102.84

** Brent crude futures LCOc1 up 0.6% at $77.1 per barrel

** Ten-year U.S. note yield at 4.07%

** As per NSDL data, foreign investors sold a net $641mln worth of Indian shares on Oct. 8

** NSDL data shows foreign investors bought a net $70.1mln worth of Indian bonds on Oct. 8

Reporting by Nimesh Vora; Editing by Sonia Cheema

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