Rupee to fall on surging US yields; 83/USD to be breached without RBI’s help

By Nimesh Vora

MUMBAI (Reuters) – The Indian rupee is expected to decline on Monday on the back of a jump in U.S. yields, which boosted the dollar versus its major peers and Asian currencies.

Non-deliverable forwards indicate the rupee will open at around 82.92-82.94 to the U.S. dollar, compared with 82.8450 in the previous session.

The rupee last week was held in a narrow range, with the Reserve Bank of India (RBI) likely intervening to prevent the currency from dropping below the psychological 83 level.

“If RBI continues to sell, we could see the dollar rupee in the range of 82.60 to 82.90 (this week), else it may cross 83.00,” said Anil Bhansali, head treasury at FX advisory firm Finrex Treasury Advisors.

The 10-year U.S. yield climbed about 8 basis points (bps) on Friday and was marginally higher in Asia. At 4.18%, the 10-year U.S. yield is about 16 bps from October 2022 highs.

The increase in U.S. yields on Friday came despite a small downtick in the University of Michigan survey’s measure of long-run inflation expectations.

This indicated that “the movement in yields is more about supply”, ANZ said in a note. A wall of issuance in store over coming months has fuelled worries over supply and Fitch’s downgrade of U.S. debt has not helped, it said.

Longer maturity yields in the U.K. and Germany soared on Friday as well.

“The current steepening pressure on yield curves has little to do with policy rate expectations and warrants watching.” ANZ added.

Asian currencies were down between 0.2% and 0.6% to begin the week. The offshore Chinese yuan dropped to 7.2775 to the dollar, the lowest in one-and-a-half months.

KEY INDICATORS: ** One-month non-deliverable rupee forward at 83.00; onshore one-month forward premium at 8 paisa ** USD/INR NSE August futures settled at 82.8300 on Friday ** USD/INR August forward premium at 4.0 paisa ** Dollar index up at 102.98 ** Brent crude futures down 0.5% at $86.4 per barrel ** Ten-year U.S. note yield at 4.18%

** As per NSDL data, foreign investors bought a net $247.3mln worth of Indian shares on Aug. 10

** NSDL data shows foreign investors bought a net $31.3mln worth of Indian bonds on Aug. 10

(Reporting by Nimesh Vora; Editing by Sonia Cheema)