By Dharamraj Dhutia and Jaspreet Kalra
MUMBAI – The Indian rupee is likely to track a pullback in the odds of a June rate cut by the U.S. Federal Reserve and, along with government bonds, will gauge elevated crude oil prices and local and U.S. inflation data over a holiday-truncated trading week.
The currency and debt markets will remain shut on Tuesday and Thursday for local holidays.
The rupee closed at 83.2950 against the U.S. dollar on Friday and notched a weekly gain of 0.1%, recovering from a record low of 83.4550 hit on Thursday.
The odds of a Fed rate cut in June declined to nearly 51% on Friday, according to CME’s FedWatch tool, after data showed that the U.S. economy created more jobs than expected in March.
The dollar index edged higher on the day but logged a weekly decline of nearly 0.2%. “Don’t think the rupee’s upside will extend much beyond 83.20,” an FX trader at a private bank said.
Meanwhile, the 10-year Indian government bond yield ended the first week of the new financial year with an upward bias and settled at 7.1232% on Friday, gaining seven basis points. The benchmark yield had eased four basis points in the previous week.
Traders expect the 10-year yield to move in the 7.07%-7.15% range.
The Fed “obviously won’t cut rates imminently,” with jobs this strong and upcoming U.S. inflation data likely to remain hot, ING Bank stated in a note. Higher U.S. yields and oil prices will be key, added the FX trader at a private bank quoted earlier.
U.S. yields moved higher after the jobs data while the benchmark Brent crude contract hit its highest level in nearly six months on supply worries, weighing on investor sentiment and forcing government bond investors to keep oil under watch.
Treasury yields rose on worries over the timing and magnitude of Fed rate cuts in 2024.
Consumer inflation prints are due in the U.S. on Wednesday, followed by India’s inflation reading on Friday. Indian headline retail inflation reading is seen at 4.7% year-on-year in March, the lowest since May 2023, Barclays said.
The Reserve Bank of India’s monetary policy decision on Friday, in which it kept the key interest rate unchanged for a seventh straight meeting, did little to change the needle in any direction, forcing investors to rely on global factors for strong directional triggers.
“Shorter-term bonds are also well poised in our view with change in liquidity stance, the onset of lean season of credit, and lower supply on short governments and treasury bills versus the same period a year ago,” Suyash Choudhary, head of fixed income at Bandhan AMC said. KEY EVENTS: ** U.S. March CPI – April 10, Wednesday (6:00 p.m. IST) (Reuters poll 3.2% on-year) ** U.S. initial weekly jobless claims week to April 1 – April 11, Thursday (6:00 p.m. IST) ** U.S. March PPI machine manufacturing – April 11, Thursday (6:00 p.m. IST)
** India Feb industrial output – April 12, Friday (5:30 p.m. IST) ** India March CPI inflation – April 12, Friday (5:30 p.m. IST)
** U.S. March import prices – April 12, Friday (6:00 p.m. IST)
** U.S. April U Mich sentiment – April 12, Friday (7:30 p.m. IST)
(Reporting by Dharamraj Dhutia and Jaspreet Kalra; Editing by Janane Venkatraman)
