Rupee Weakens To 2-1/2 Month Low As Bond Yields Go Up On Rising Oil Prices

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Rupee Weakens To 2-1/2 Month Low As Bond Yields Go Up On Rising Oil Prices

India’s benchmark 10-year bond yield -was up two basis points at 6.28 per cent

The rupee weakened to its lowest in two-and-a-half months against the US dollar on Wednesday, October 6, as bond yields went up amid a spike in global crude oil prices. The price hike re-established concerns over the imported inflation and a drop in Asian peers – both of which weighed on investor sentiment, according to news agency Reuters. 

The partially convertible rupee touched 74.6450  – its lowest level since July 20. It had closed at 74.4450 on Tuesday, October 5. Most of the Asian currencies were also trading weaker against the dollar – which also rose concerns about the global economic growth outlook.

Traders also await the US jobs data for signals on the timing of the Federal Reserve policy tightening upon economic recovery. To keep inflation in check, Fed policymakers anticipate a hike in interest rates as early as next month. 

Economists stated that Moody’s upward revision of India’s sovereign rating outlook to stable from negative, should mean well – particularly for bonds.

However, India’s benchmark 10-year bond yield – was up two basis points at 6.28 per cent, tracking firm U.S. Treasury yields and rising oil prices.

U.S. oil prices rose for a fifth day to their highest mark since 2014 amid concerns about energy supply on tightness in the natural gas, coal and coal markets. 
 

What analysts say:

Mr Amit Pabari, MD, CR Forex:

”The momentum for the pair is likely to remain on the upside as the US dollar index is holding 94 levels very tightly. Further, an additional run-up in the crude oil prices above $83 mark-highest level since 2014 would keep pressurizing on the oil-importing nation.

On the domestic front, equities are experiencing a bargain hunter’s bottom fishing buying and that is not allowing the market to post losses. The borrowing spree is expected to continue over the near term. 

This could curb losses in the rupee, however further directional will be decided by the RBI’s policy decision- which kicks off from today. The announcement on the policy decision will be due on 8th Oct, where they could taper their bond-buying (G-SAP) program, hike reverse repo rate or announce higher VRR operation to suck out excess liquidity.”

Kshitij Purohit, Lead International & Commodities at CapitalVia Global Research Limited:

”The USD/INR pair opened the day at 74.64, up 33 paise/USD from the previous day’s closing, as the Evergrande debt crisis and rising global oil prices boosted demand for safe-haven assets. The currency pair is predicted to test the next resistance level at 74.80, with an RBI intervention at that level likely to keep currency volatility in the local market in check. 

On the domestic front, USD/INR October, opened on a positive note and we witnessed prices moving in a marginally sideways to Bearish trend. The huge gap created by today’s opening has been filled and prices have tested support around yesterday’s high, after which we saw a gradual recovery.”

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