India rupee may stay under pressure, bonds to follow cenbank policy decision
INDIA-WEEKAHEAD/MARKETS:WEEKAHEAD-India rupee may stay under pressure, bonds to follow cenbank policy decision
By Dharamraj Dhutia and Jaspreet Kalra
MUMBAI, Dec 2 (Reuters) - The Indian rupee is likely to remain pressured this week amid persistent portfolio outflows, and take cues from the central bank's monetary policy decision and U.S. labor market data, which will also be key for government bond yields.
The rupee closed at 84.4825 against the U.S. dollar on Friday.
The currency weakened 0.5% in November, its deepest fall since March, as Donald Trump's victory in the U.S. election sparked a wave of dollar strength and lifted U.S. bond yields.
Investors will keep an eye on how portfolio flows shape up in the first week of December, after foreign investors net sold over $13 billion of local stocks and bonds over the last two months.
The weaker-than-expected GDP data for the July-September quarter could spark fresh outflows from stocks, hurting the rupee, a trader at a state-run bank said, pegging the rupee in a 84.35-84.70 range for the week.
The Reserve Bank of India's policy decision on Friday will be in focus, followed by U.S. labor market data to gauge the trajectory of U.S. interest rates, especially as analysts reckon Trump's policies may put upward pressure on inflation.
"If the rupee convincingly falls below 84.50 this week, it could lead to quick decline to 84.70," driven by importers rushing to cover near-term payables and traders being stopped out of short positions (on USD/INR), said Dilip Parmar, a foreign exchange research analyst at HDFC Securities.
The rupee had weakened to a record low of 84.5075 on Nov. 22 but avoided sharper losses on the back of frequent RBI interventions.
Meanwhile, the benchmark 10-year bond yield fell 11 basis points last week, after rising 2 bps in the prior week, as U.S. Treasury yields eased.
Traders expect the yield to remain in the 6.70%-6.80% range till the RBI's monetary policy decision.
Goldman Sachs expects the central bank to maintain repo rate and policy stance unchanged, but sound cautious on food inflation and acknowledge the moderation in growth.
"Despite the sharp slowdown in GDP growth, we maintain our view of a pause by the RBI next week given elevated inflation and uncertain global environment," said Upasna Bhardwaj, chief economist at Kotak Mahindra Bank.
Traders will also focus on foreign investors' appetite, as they were net sellers of bonds in November.
These sellers may not be in a hurry to return as the rupee is expected to remain under pressure and interest rate cuts seem to be delayed, Nitin Agarwal, head of trading at ANZ India, said last week.
KEY EVENTS:
India
** HSBC India November manufacturing PMI data - Dec. 2, Monday (10:30 a.m. IST)
** HSBC India November services PMI data - Dec. 4, Wednesday (10:30 a.m. IST)
** Reserve Bank of India's interest rate decision - Dec. 6, Friday (10:00 a.m. IST) (Reuters poll - unchanged at 6.50%)
U.S.
** November S&P global manufacturing PMI final - Dec. 2, Monday (8:15 p.m. IST)
** November ISM manufacturing PMI - Dec. 2, Monday (8:30 p.m. IST)
** November S&P global composite PMI final - Dec. 4, Wednesday (8:15 p.m. IST)
** November S&P global services PMI final - Dec. 4, Wednesday (8:15 p.m. IST)
** November ISM non-manufacturing PMI - Dec. 4, Wednesday (8:30 p.m. IST)
** October factory orders - Dec. 4, Wednesday (8:30 p.m. IST)
** October international trade data - Dec. 5, Thursday (7:00 p.m. IST)
** Initial weekly jobless claims week to Nov. 25 - Dec. 5 Thursday (7:00 p.m. IST)
** November non-farm payrolls and unemployment rate - Dec. 6, Friday (7:00 p.m. IST)
** December U Mich sentiment prelim - Dec. 6, Friday (8:30 p.m. IST) (Reporting by Dharamraj Dhutia and Jaspreet Kalra; Editing by Varun H K)
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First Published:2 Dec 2024, 07:01 AM IST
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