Indian rupee, bonds to cling to oil cues with US midterm outcome in focus

The rupee recorded its strongest monthly gain since February on Friday, supported by central bank measures to curb dollar demand, and settled at 94.95 per dollar. Traders expect the Reserve Bank of India to curb sharp declines, but IFA Global said it does not expect much strengthening while Brent crude remains above $100 per barrel, projecting a range of 94.20 to 96.80 over the next few weeks.

Indian bonds are expected to take direction from crude prices and RBI liquidity tightening. Traders see the 10-year yield in a 7.35% to 7.50% range; it fell about 6 basis points last week after rising more than 70 basis points over the prior 10 weeks. Foreign investors have reduced exposure to index-eligible bonds to a four-month low, while RBI operations to support the rupee are draining banking liquidity.

Traders are watching the US midterm elections and their potential impact on the Iran war and oil prices, along with Friday’s US October non-farm payrolls report for clues on the Federal Reserve’s next policy move. India’s foreign exchange reserves fell to $719.75 billion as of October 23, while the central bank’s net forward dollar liabilities reached a record $239.17 billion.