Indian rupee, bond yields may see mild decline; Fed meeting in focus
By Dharamraj Dhutia and Jaspreet Kalra
MUMBAI, July 29 (Reuters) -The Indian rupee is likely to remain under pressure after touching an all-time low last week, and alongside government bonds will take cues from the Federal Reserve's policy decision due on Wednesday.
The rupee INR=IN ended at an all-time low of 83.7275 on Friday, pressured by weak risk appetite and persistent dollar demand from oil companies.
The local currency faced headwinds last week after the government's decision to raise taxes on profits from equity investments dampened sentiment, followed by overseas investors withdrawing about $1 billion from the Indian stock markets.
The dollar-rupee pair is likely to move higher steadily with support "shifting upward to 83.45 while getting resisted at 83.85," Dilip Parmar, a foreign exchange research analyst at HDFC Securities said.
Traders expect the Reserve Bank of India to continue intervening in the market to limit volatility.
Meanwhile, data released on Friday showed that U.S. prices rose along largely expected lines in June, supporting hopes of a rate cut by the Federal Reserve in September.
The dollar ended slightly lower last week, while most Asian currencies gained.
The Fed is widely expected to keep rates unchanged at its July 30-31 meeting, with investors paying close attention to Chair Jerome Powell's remarks to gauge the future path of U.S. policy rates.
Meanwhile, the Indian 10-year government bond yield IN071034G=CC ended at 6.9419% on Friday, down 3 basis points last week after easing two bps in the previous week.
Traders expect the benchmark yield to move in the range of 6.90% to 6.98% this week, taking cues from the Fed's policy meeting.
Bond yields eased last week as favourable demand-supply dynamics supported investor sentiment, while the federal budget announcement did little to help the longer-end of the bond yield curve.
The government cut the fiscal deficit target by 20 basis points to 4.9% for this year from 5.1% in the interim budget, but reduced gross borrowing by only 120 billion rupees to 14.01 trillion rupees. It, however, slashed issuance of Treasury bills, which will result in a net inflow of 500 billion rupees.
Market participants believe that more action could shift in the shorter-end of the curve, steepening the yield curve in the coming days.
"The 10-year part of the bond yield curve is unlikely to show any major moves, and should remain in the 6.92%-7.00% range, while the action will shift in the shorter end," said Vikas Goel, managing director at PNB Gilts.
KEY EVENTS:
** U.S. July consumer confidence - July 30, Tuesday (7:30 p.m. IST)
** India June fiscal deficit data - July 31, Wednesday (3:30 p.m. IST)
** India June infrastructure output data - July 31, Wednesday (5:30 p.m. IST)
** Bank of Japan rate decision - Aug. 1, Thursday
** U.S. Fed Federal Reserve policy decision - July 31, Wednesday (11:30 p.m. IST) (Reuters poll: No change expected)
** HSBC India July manufacturing PMI - Aug. 1, Thursday (10:30 a.m. IST)
** Bank of England rate decision - Aug. 1, Thursday (5:30 p.m. IST)(Reuters poll: No change expected)
** U.S. initial weekly jobless claims for week ended July 22 - Aug. 1, Thursday (6:00 p.m. IST)
** U.S. July S&P Global global manufacturing PMI - Aug. 1, Thursday (7:15 p.m. IST)
** U.S. July ISM manufacturing PMI - Aug. 1, Thursday (7:30 p.m. IST)
** U.S. July non-farm payrolls and unemployment rate - Aug. 2, Friday (6:00 p.m. IST)
** U.S. June factory orders - Aug. 2, Friday (6:00 p.m. IST)
Reporting by Dharamraj Dhutia and Jaspreet Kalra; Editing by Sherry Jacob-Phillips
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