Rupee may encounter mild headwinds, eyes US data; bonds to track Treasuries
By Dharamraj Dhutia and Jaspreet Kalra
MUMBAI, July 1 (Reuters) -The Indian rupee may face slight pressure this week amid concerns about political uncertainty that led U.S. yields higher on Friday, even as data signalled that inflation is cooling in the world's largest economy, while bonds are expected to track Treasuries.
The rupee INR=IN closed at 83.3825 against the U.S. dollar on Friday, up nearly 0.2% week-on-week, aided by inflows on account of India's inclusion in the JPMorgan emerging market debt index.
Portfolio inflows, strong domestic economic growth and interventions by the Reserve Bank of India (RBI) have helped the rupee outperform most of its Asian peers so far in 2024.
A flat reading on the U.S. personal consumption expenditures (PCE) price index for May on Friday supported hopes of rate cuts by the Federal Reserve later this year. Despite this, U.S. bond yields rose as uncertainty around the domestic presidential election as well as elections in France and the UK eroded optimism around moderating inflation.
“Expecting some weakness in the rupee (this week) but it should stay between 83.20 and 83.65,” Dilip Parmar, a foreign exchange research analyst at HDFC Securities, said.
Remarks from Fed Chair Jerome Powell will be in focus on Tuesday, followed by minutes from the Fed's latest policy meeting, general elections in the UK and U.S. labour market data later in the week.
“Our view is that (U.S.) labour demand is moderating from a strong pace, but not enough to alleviate price pressures,” Societe Generale said in a note.
Meanwhile, the 10-year Indian government bond yield IN071034G=CC ended at 7.0095% on Friday, rising 4 basis points (bps) after easing 1 bp in the previous week. Traders expect the benchmark yield to move in the 6.97%-7.05% range this week.
Government bonds were unable to gain meaningfully on Friday, the day of the much-awaited inclusion of the country's sovereign debt into the widely-tracked JPMorgan debt index, as inflows overwhelmed investors.
Bonds under the so-called fully accessible route, which have been added to the index, saw purchases of 16.54 billion rupees ($198.4 million) on Friday, according to data.
Overall inflows in these bonds have touched $11 billion, since the inclusion announcement in September last year, with most recent flows in longer duration securities.
Uncertainty around local and global monetary policies continues to weigh on front-end rates where the timing on interest rate cuts is more important, said Clément Niel, portfolio manager for emerging markets local debt at BNP Paribas Asset Management.
"The switch to longer-end maturities allows to plan for lower rates while front-end rates remain anchored to current monetary policy."
KEY EVENTS:
** HSBC India June manufacturing PMI - July 1, Monday (10:30 a.m. IST)
** U.S. June S&P Global global manufacturing PMI - July 1, Monday (7:15 p.m. IST)
** U.S. June ISM manufacturing PMI - July 1, Monday (7:30 p.m. IST)
** HSBC India June services PMI - July 3, Wednesday (10:30 a.m. IST)
** U.S. May international trade - July 3, Wednesday (6:00 p.m. IST)
** U.S. initial weekly jobless claims - July 3, Wednesday (6:00 p.m. IST)
** U.S. June S&P Global services and composite PMI - July 3, Wednesday (7:15 p.m. IST)
** U.S. May factory orders - July 3, Wednesday (7:30 p.m. IST)
** U.S. June ISM non-manufacturing PMI - July 3, Wednesday (7:30 p.m. IST)
** U.S. July-September overall comprehensive risk - July 3, Wednesday (10:30 p.m. IST)
** India July-September overall comprehensive risk - July 5, Friday (8:30 a.m. IST)
** U.S. June non-farm payrolls and unemployment rate - July 5, Friday (6:00 p.m. IST)
($1 = 83.3550 Indian rupees)
Reporting by Dharamraj Dhutia and Jaspreet Kalra; Editing by Sonia Cheema
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