Indian rupee, bonds vulnerable to oil pangs as Iran diplomacy hopes wane
TLT•The Indian rupee and government bonds are expected to remain vulnerable through a holiday-shortened week as oil prices stay elevated, global bond yields remain at multi-year highs and bets on an RBI rate hike grow. The rupee closed Friday at 95.8150 per dollar, while the 10-year bond yield rose five basis points for the week to 7.1194%.
1. Rupee faces pressure
The rupee and Indian government bonds are expected to remain vulnerable through a holiday-shortened week, with oil prices elevated and global bond yields at multi-year highs. The rupee closed Friday at 95.8150 per dollar, little changed week on week. Traders expect RBI interventions to continue after helping keep the currency between 95.50 and 96 last week.
2. Bond yields rise
Indian government bonds may face further selling as bets on a hawkish RBI grow and traders expect the central bank to keep draining surplus liquidity. The benchmark 10-year yield ended Friday at 7.1194%, up five basis points for the week and marking a sixth consecutive weekly rise. Traders expect it to move into a 7.05% to 7.15% range; the RBI has sold 750 billion rupees of bonds and plans to sell 250 billion rupees on Monday.
3. Data in focus
Markets will also watch US September payrolls and August personal consumption expenditure inflation data, alongside Federal Reserve policymakers’ remarks. A softer payroll print could pull US yields lower and provide some reprieve for regional currencies, while resilient labor-market data and sticky price pressures could reinforce higher-for-longer US rates, MUFG said in a note. India’s foreign exchange reserves fell nearly $15 billion in the week ended September 15, to $765.9 billion.
