By Jaspreet Kalra and Nimesh Vora
MUMBAI (Reuters) – The Indian rupee is likely to weaken more on Wednesday after the dollar index rose to the highest in just under six months on weak risk and rising U.S. Treasury yields. Non-deliverable forwards indicate rupee will open at around 83.10-83.12 to the U.S. dollar, compared to 83.04 in the previous session which was a two-week low.
U.S. Treasury yields rose on Tuesday with the 10-year yield now about ten basis points shy of the recent high. Expectations that the Federal Reserve will keep rates high for longer have prompted investors to push the 10-year yield to the highest since 2007.
Federal Reserve Governor Christopher Waller said on Tuesday that he felt U.S. treasury yields were about where they should be and cautioned against assumptions about no further Fed tightening.
The dollar index rose to the highest since mid-March.
Resilient U.S. yields will keep the dollar “well-bid” and all eyes today will be on the Reserve Bank of India (RBI), Ritesh Bhansali, vice president at Mecklai Financial, said.
When the rupee dropped below 83 last month, the RBI intervened both in the onshore over-the-counter market and the non-deliverable forwards market to prevent it from hitting a record low.
The rupee’s fell to 83.16 last month, just shy of the lifetime low of 83.29.
Poor risk appetite further boosted demand for the safe-haven dollar. U.S. equities dropped overnight and most Asian gauges were lower.
A few analysts reckon that the dollar was over-valued at current levels.
“We suspect a deterioration in the economic outlook remains the only real path for the mis-valuation gap to close,” ING Bank said in a note.
“What this gap is telling us now is that the dollar correction, once the U.S. data turns, can be quite rapid and substantial.”
KEY INDICATORS: ** One-month non-deliverable rupee forward at 83.17; onshore one-month forward premium at 9.5 paisa ** USD/INR NSE September futures settled at 83.1275 on Tuesday ** USD/INR September forward premium at 6.25 paisa ** Dollar index up at 104.78 ** Brent crude futures up 0.1% at $90.1 per barrel ** Ten-year U.S. note yield at 4.26% ** As per NSDL data, foreign investors sold a net $287.1mln worth of Indian shares on Sep. 4** NSDL data shows foreign investors sold a net $3.2mln worth of Indian bonds on Sep. 4
(Reporting by Nimesh Vora; Editing by Janane Venkatraman)
