By Dharamraj Dhutia and Nimesh Vora
MUMBAI (Reuters) – The Indian rupee will take cues from policy outcomes from major central banks as well as important U.S. data releases this week, while government bond yields will closely track the move in U.S. Treasuries based on the Federal Reserve’s guidance on rates.
The rupee ended at 81.9450 against the dollar on Friday, rising about 0.1% for the week. Traders expect the currency to move in the range of 81.80 – 82.40 this week.
The Fed’s policy decision is due on Wednesday, followed by the European Central Bank (ECB) on Thursday and the Bank of Japan (BOJ) on Friday.
It is near certain that the Fed will hike rates by 25 basis points (bps) in the wake of still-high inflation and resilient U.S. data, with the central bank expected to maintain a bias towards more rate hikes.
The ECB too is expected to raise rates by a similar margin.
“Policy-setting meetings loom large,” ING Bank said in a note, saying yields were rising, with the central banks not taking any chances with inflation.
Traders will also eye the U.S. core personal consumption expenditures index for cues on rates. The index, Fed’s preferred inflation gauge, is due after the Fed meeting.
Meanwhile, the benchmark 7.26% 2033 bond yield ended at 7.0784% on Friday, largely unchanged last week, after easing by 7 bps in the previous week.
The yield had eased recently, tracking U.S. peers after softer-than-expected inflation reading raised bets that the Fed will pause rate hikes after a final increase in July.
Still, traders turned cautious after the domestic yield moved below the key technical level of 7.08% last week, and that led to some reversal in downtrend. They expect the benchmark yield to move in the 7.03%-7.12% range this week.
The 10-year U.S. yield, which traded around the key level of 3.80% last week, is awaiting the Fed’s guidance for a major directional breakout.
Vikas Goel, managing director and chief executive at PNB Gilts, said the domestic benchmark yield may touch 6.95% if the Fed indicates a pause, while the lack of such an indication could take the yield back to around 7.15% levels.
KEY EVENTS:
• U.S. S&P Global Manufacturing PMI Flash, Services PMI Flash for July – July 24, Monday (7:15 p.m. IST) • U.S. consumer confidence for July – July 25, Tuesday (7:30 p.m. IST)
• U.S. new home sales for June – July 26, Wednesday (7:30 p.m. IST)
• U.S. Fed fund target rate – July 26, Wednesday (11:30 p.m. IST)
• U.S. GDP advance estimate for April-June – July 27, Thursday (6:00 p.m. IST)
• U.S. initial jobless claim for week to July 17 – July 27, Thursday (6:00 p.m. IST)
• U.S. core PCE price index for June – July 28, Friday (6:00 p.m IST)
(Reporting by Dharamraj Dhutia and Nimesh Vora; Editing by Janane Venkatraman)
