The Indian rupee is anticipated to open slightly higher on Thursday, driven by expected inflows from the inclusion of Indian bonds in a major emerging market index. This inclusion, effective from June 28, is likely to attract passive fund inflows, providing support to the rupee.
Picture: Indian rupee trading at 83.562 on the VT Markets app.
Non-deliverable forwards suggest that the USDINR will likely open at 83.54-83.55 against the U.S. dollar, slightly stronger than the previous session’s 83.57. According to traders, these dollar inflows are expected on Thursday and Friday, with interbank players possibly positioning short on the dollar/rupee pair in anticipation.
Also read: Rupee expected to struggle as positive US data strengthens dollar
Pressure on Asian currencies and inflation concerns
Most Asian currencies have been under pressure, with the dollar index (DXY) hovering near a two-month high. The 10-year U.S. Treasury yield climbed by 8 basis points on Wednesday, reflecting ongoing inflation concerns. This week, inflation data from Canada and Australia surprised on the upside, adding to market uncertainty.
The U.S. core personal consumption expenditures (PCE) data, a key inflation measure for the Federal Reserve, is due on Friday. The 10-year U.S. Treasury yield remains near a two-week high, complicating the outlook for Asian currencies, which have struggled this year.
The offshore Chinese yuan fell below 7.30 to the dollar for the first time since November, and the Japanese yen weakened past 160. These developments add pressure on Asian currencies, including the rupee.
The one-month non-deliverable rupee forward is currently at 83.62, with the onshore one-month forward premium at 8 paisa. This indicates a cautious market sentiment towards the rupee in the near term. The dollar index stands at 105.96, reflecting the dollar’s strength against a basket of major currencies.
Influence of Brent crude and rising U.S. treasury yields
Brent crude futures are down 0.9%, trading at $88.68, which could influence inflation expectations and, consequently, currency movements. The ten-year U.S. Treasury note yield is at 4.34%, underscoring the rising yield environment that poses challenges for emerging market currencies.
Foreign investors have shown confidence in Indian assets, buying a net $296 million worth of Indian shares on June 25. Additionally, foreign investors bought a net $128 million worth of Indian bonds on the same day. These inflows are crucial for supporting the rupee amid global market volatility.
The rupee’s performance in the coming days will largely hinge on the size and impact of the anticipated bond inflows and the reaction to U.S. inflation data. Caution is advised as the market navigates these uncertain waters.
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