Thursday, December 1

Rupee may inch up as fall in US yields boosts Asian currencies

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MUMBAI — The Indian rupee may open a shade higher against the dollar on Friday, as a further pullback in US Treasury yields lifted Asian currencies.

The rupee is tipped to open at around 82.45 per US dollar, compared with 82.4900 in the previous session. The local unit managed to reach 82.15 on Thursday but struggled thereafter on broad-based dollar demand.

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It is “increasingly evident” that the 82 to 83 level is probably “the new range” for the rupee, a Mumbai-based trader said.

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“The Federal Reserve meet next week is a potential risk point, but we doubt it will have the impact of taking rupee out of this range.”

Asian currencies rose and the dollar index dipped, tracking a further fall in US Treasury yields. The 10-year yield slipped below 3.90% in Asia, down more than 40 basis points (bps) from last week’s highs.

Data showing that US consumer and business spending slowed in the third quarter supported demand for Treasuries.

A less-than-hawkish guidance by the European Central Bank further spurred demand for US bonds. European bond yields slid after the ECB raised rates by an expected 75 bps but hinted at a slower pace of future increases.

The ECB is the latest central bank that has sounded less hawkish relative to expectations. The Bank of Canada and the Reserve Bank of Australia opted for smaller rate increases than what investors had priced in.

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This sort of pivot from central banks, alongside a report that the Fed may slow down the pace of hikes after next week’s meeting, has prompted traders to reassess their expectations.

They now reckon there is only a 30% chance that the Fed will raise rates by 75 bps in December, down from a probability of 65% last week.

The offshore Chinese yuan rose to 7.2380 to the dollar, leading Asian currencies higher.


** One-month non-deliverable rupee forward at 82.64; onshore one-month forward premium at 20.5 paise

**USD/INR NSE Nov futures settled on NSE at 82.6550

**USD/INR Nov forward premium at 20.5 paise

** Dollar index at 110.3

** Brent crude futures down 0.4% at $96.5 per barrel

** Ten-year US note yield at 3.91%

** SGX Nifty nearest-month futures up 0.3% at 17,852

** As per NSDL data, foreign investors bought a net $40 million worth of Indian shares on Oct. 25

** NSDL data shows foreign investors bought a net $7 million worth of Indian bonds on Oct. 25 (Reporting by Nimesh Vora; Editing by Savio D’Souza)