Indian rupee seen opening lower as U.S. yields, dollar climb; RBI support key


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MUMBAI — The Indian rupee will likely open lower against the dollar on Monday, as expectations that the Federal Reserve will keep tightening its policy boosted the U.S. currency and Treasury yields.

The rupee is tipped to open at around 79.90 per dollar, compared with 79.7750 on Friday.

The local currency is within striking distance of its record low of 80.0650 hit on July 19. The 80/dollar level is considered psychologically important, and traders say the Reserve Bank of India (RBI) likely intervened aggressively when the rupee had fallen to that level.

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There will be an “understandable hesitancy” to take the rupee below 80 at open as market participants assess “what will be the RBI’s stance today,” a currency dealer with a Mumbai-based bank said.

“Will the RBI relent and let the rupee adjust more in the face of across-the-board dollar strength.”

The dollar index (=USD) inched higher to 108.25, adding to last week’s 2.3% surge – the gauge’s best performance since April 2020. The 10-year Treasury yield rose to 3% and the 2-year yield to 3.28%.

Comments from Fed officials that there would be no letup in tightening anytime soon have fueled demand for the dollar. The relatively hawkish comments have prompted traders to reassess their expectations that the Fed could cut rates later next year.

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On Friday, Richmond Federal Reserve President Thomas Barkin said that given the strength of inflation this year, with consumer prices increasing 8.5% on an annual basis in July, the “urge” among central bankers was towards faster, front-loaded rate increases.

At its next meeting, the Fed is expected to raise rates by 50 basis points or 75 basis points. The odds currently are almost even.

Focus this week will be on comments by Fed Chair Jerome Powell when he addresses an annual global central banking conference in Jackson Hole, Wyoming, on Friday.

The South Korean won was the top loser among Asian currencies on Monday. The offshore Chinese yuan declined to 6.84 to the dollar. U.S. equity futures declined, adding to Friday’s losses.

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KEY INDICATORS: ** One-month non-deliverable rupee forward at 80.15; onshore one-month forward premium at 21.03 paise ** USD/INR NSE August futures closed on Friday at 79.94 ** USD/INR forward premium as of Aug. 19 for end current month is 4.0 paise ** Dollar index up at 108.2 ** Brent crude futures down 1% at $95.7 per barrel ** Ten-year U.S. note yield at 2.99%, India 10-yr bond yield at 7.2639% ** SGX Nifty nearest-month futures down 0.4% at 17,681 ** As per NSDL data, foreign investors bought a net $434 mln worth of Indian shares on Aug. 18 ** NSDL data shows foreign investors bought a net $11.2 mln worth of Indian bonds on Aug. 18

(Reporting by Nimesh Vora; Editing by Subhranshu Sahu)



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