Rupee likely to remain under pressure on rising US yields

By Nimesh Vora

MUMBAI (Reuters) – The Indian rupee is expected to remain under pressure on Friday after longer maturity U.S. yields reached the highest level this year.

Non-deliverable forwards indicate the rupee will open slightly weaker to the U.S. dollar from 82.7225 in the previous session.

The rupee on Thursday reached 82.81, the lowest in more than two months, on the possibility that the Reserve Bank of India intervened to prevent the currency from dipping further, according to market participants.

USD/INR “remains well bid” offshore, possibly on account of positions being adjusted to “what is happening in U.S. yields”, a forex trader at a bank said.

“The rupee and the whole EM complex will not see any sort of relief if the volatility in U.S. yields remains high.”

The 10-year U.S. yield on Thursday climbed to 4.20%, the highest since Nov. 2022. The yield is up about 35 basis points (bps) in the space of about two weeks.

The Fitch downgrade of the U.S. credit rating, broadly resilient U.S. data and rising U.S. inflation expectations have contributed to the selloff in Treasuries. The 30-year U.S. yield is up 40 bps in two weeks.

The focus now shifts to the U.S. non-farm payrolls report due later in the day. Data that indicates that the U.S. labor market continues to hold up well will not be received well by the already nervous U.S. bond investors.

Economists polled by Reuters expect 200,000 job additions and average wage growth of 0.3% month-on-month.

Considering the decline in the U.S. jobless claims in July, “we cannot rule out surprises in today’s NFP”, DBS Research said in a note.

KEY INDICATORS: ** One-month non-deliverable rupee forward at 82.85; onshore one-month forward premium at 7 paisa ** USD/INR NSE August futures settled at 82.7925 on Thursday ** USD/INR August forward premium at 5.5 paisa ** Dollar index at 102.38 ** Brent crude futures little changed at $85.2 per barrel ** Ten-year U.S. note yield at 4.17% ** As per NSDL data, foreign investors sold a net $182 mln worth of Indian shares on Aug. 2

** NSDL data shows foreign investors bought a net $1.8 mln worth of Indian bonds on Aug. 2

(Reporting by Nimesh Vora; Editing by Sonia Cheema)