Rupee likely to slip on concerns over US yields as Asian currencies extend losses

The rupee is tipped at around 82.82-82.86 to the dollar at open compared with 82.76 in the previous session. On Thursday, rupee dipped to a record low of 83.25.

A cashier at a petrol station, Ahmedabad | Reuters @Amit Dave

Mumbai: The Indian rupee is expected to open slightly lower versus the dollar on Friday as another upward move in U.S. yields weighs on demand for Asian currencies.

The rupee is tipped at around 82.82-82.86 to the dollar at open compared with 82.76 in the previous session, when it also slid to a fresh record low before recovering.

The moves in the emerging market currencies are “obviously relevant”, but at the “current level and after what happened yesterday”, the Reserve Bank of India and the interbank overall positions are more crucial, a trader at a Mumbai-based bank said.

The central bank sold dollars aggressively on Thursday as the local unit plumbed fresh lows, said traders. The intervention in the afternoon session led to the rupee mounting a quick recovery from near 83.25 to 82.80.

Like in previous sessions of late, the RBI did buy/sell swaps alongside spot dollar sales, pushing forward premiums lower. The USD/INR 1-year implied yield dropped to near 2.50%.

“The RBI will dominate moves in both the spot and the forward market,” the trader said.

Asian currencies extended losses on Friday after the selloff in U.S. bonds showed no signs of letting up. The 10-year Treasury yield reached a new 14-year peak on economic data that suggested the U.S. labour market was holding up well.

The data reinforced bets that the Federal Reserve would keep opting for large rate increases. Hawkish comments from Federal Reserve Bank of Philadelphia President Patrick Harker further underpinned aggressive rate hike fears.

U.S. equities slipped overnight. Futures on the S&P 500 Index were marginally lower and Asian shares posted moderate losses.

Asian currencies were down 0.1% to 0.4%. The offshore Chinese yuan dipped to below 7.26 to the dollar, hovering just above year-to-date lows.

KEY INDICATORS:

** One-month non-deliverable rupee forward at 83.16; onshore one-month forward premium at 20.75 paise

** USD/INR NSE October futures settled at 82.7750 on Thursday

** USD/INR October forward premium at 3.0 paise

** Dollar index at 112.96

** Brent crude futures up 0.1% at $92.5 per barrel

** Ten-year U.S. note yield at 4.2320%

** SGX Nifty nearest-month futures little changed at 17,527

** As per NSDL data, foreign investors sold a net $46.2 million worth of Indian shares on Oct. 20

** NSDL data shows foreign investors bought a net $16.1 million worth of Indian bonds on Oct. 20 – Reuters