Rupee likely to open flat but be pressured as U.S. yields climb

By Jaspreet Kalra

MUMBAI (Reuters) – The Indian rupee is likely to open little changed tracking non-deliverable forwards despite a spike in the 10-year U.S treasury yield and a stronger dollar.

Non-deliverable forwards indicate the rupee will open at around 83.12-13 to the U.S. dollar compared with 83.1450 in the previous session.

Though the currency may open flat, it is likely to stay under pressure due to month-end dollar demand, a foreign exchange trader at a private bank said. “If the Reserve Bank of India doesn’t supply dollars, we could see a weaker rupee,” he said.

The 10-year U.S. treasury yield has climbed above 4.55% and is at its highest level since October 2007 after having gained over 45 basis points in September so far, rising on expectations that the U.S. Federal Reserve is likely to keep interest rates higher for longer.

“If the economy is fundamentally much stronger than we realized, on the margin, that would tell me rates probably have to go a little bit higher, and then be held higher for longer to cool things off,” Minneapolis Federal Reserve Bank President Neel Kashkari said on Monday.

The dollar index climbed to its highest since November last year and was last quoted at 106.

Asian currencies were mostly weaker with the Thai baht leading losses down by 0.58%. Brent crude oil futures were lower at $93.19.

The Indian rupee has exhibited higher resilience than most of its Asian peers, largely aided by RBI’s interventions to support the currency,

“The INR’s resilience is looking more questionable and less supportable now,” ING bank stated in a note. “Saying this, there seems no shortage of ammunition for the RBI if it decides it wishes to persist with its INR support.”

Investors are also waiting to see whether India will be included the FTSE Emerging Markets Government Bond Index. The decision is due on Sept. 28.

KEY INDICATORS: ** One-month non-deliverable rupee forward at 83.22; onshore one-month forward premium at 10.5 paise ** USD/INR October futures settled at 83.2475 on Monday** USD/INR October forward premium at 12 paise ** Dollar index up at 106.01 ** Brent crude futures down 0.1% at $93.2 per barrel ** Ten-year U.S. note yield at 4.56%** As per NSDL data, foreign investors sold a net $140.5mln worth of Indian shares on Sep. 22

** NSDL data shows foreign investors bought a net $44.3mln worth of Indian bonds on Sep. 22

(Reporting by Jaspreet Kalra; Editing by Nivedita Bhattacharjee)