By Dharamraj Dhutia and Nimesh Vora
MUMBAI (Reuters) – The Indian rupee and government bonds will move this week based on developments in the Middle East crisis as well as a key indicator of U.S. inflation that will impact the outlook for interest rate.
The rupee fell to an all-time low of 83.5750 to the U.S. dollar on Friday, amid concerns over a broader conflict in the Middle East and expectations that U.S. interest rates are likely to remain high longer. a long time.
The currency fell 0.1% during the week to end at 83.47, and the losses would have been greater without the intervention of the Reserve Bank of India (RBI).
The rupee is expected to trade in a range of 83.25 to 83.75 this week, traders said.
Emerging market currencies have come under pressure due to fears of wider consequences from skirmishes between Israel and Iran.
“I think if there were more negative news out of the Middle East, the RBI would again intervene massively, given what happened in the last few days,” said Kunal Kurani, associate vice president of Mecklai Financial.
The hawkish tone from Federal Reserve policymakers has prompted investors to lower their expectations for interest rate cuts.
The U.S. Core Personal Consumption Expenditure Price Index, the Fed’s preferred inflation measure, is due Friday and will be watched for clues on rate developments ahead of a policy decision next week .
Meanwhile, the 10-year Indian government bond yield ended at 7.2278% on Friday, gaining 5 basis points over the week, after rising 11 basis points over the previous two weeks.
Traders expect the benchmark bond yield to move in a range of 7.16% to 7.27% this week.
Bond yields have been on an upward trend, following the upward trajectory of US yields as well as oil prices.
Treasury yields have risen as markets now expect less than 50 basis points of rate cuts in 2024.
Still, the recent rise in Indian bond yields has investors looking for value as yields are expected to decline later this year despite local central banks maintaining rates, Treasury officials said.
“The benchmark bond yield may not exceed the levels of 7.23 per cent to 7.25 per cent,” said VRC Reddy, head of treasury at Karur Vysya Bank.
DBS Bank expects the benchmark yield to fall below 7% in July-December. As Indian government bonds have a “low beta” compared to global bond movements, it is a good diversification for investors in the international debt market, the bank said.
KEY EVENTS: ** S&P US Global Manufacturing, Services and Composite April Index – Tuesday, April 23 (7:15 p.m. IST)
**US March New Home Sales – Tuesday, April 23 (7:30 p.m. IST) **US March Durable Goods – Wednesday, April 24 (6:00 p.m. IST)
**First week of US weekly unemployment claims, April 15-25, Thursday (6:00 p.m. IST)
** US GDP advanced from January to March – Thursday, April 25 (6:00 p.m. IST) (Reuters poll 2.1%) ** US personal consumption expenditure in March, core PCE index – Friday, April 26 (6:00 p.m. IST)
** U Mich sentiment in the US in April – Friday, April 26 (7:30 p.m. IST)
(Reporting by Dharamraj Dhutia and Nimesh Vora; editing by Mrigank Dhaniwala)
