Indian rupee, bond yields eye rangebound week to end 2023

By Dharamraj Dhutia and Jaspreet Kalra

MUMBAI (Reuters) – The Indian rupee and government bonds will take cues from Asian currencies and U.S. Treasuries, respectively, and are likely to remain rangebound in the year’s last trading week shortened by the Christmas holiday.

The rupee ended 0.17% stronger at 83.14 against the U.S. dollar on Friday, aided by strength in its Asian peers and dollar sales by large foreign banks.

Data released on Friday showed that core personal consumption expenditure (PCE) inflation, the U.S. Federal Reserve’s preferred inflation gauge, rose 0.1% month-on-month in November, less than the 0.2% expected by economists polled by Reuters.

The core PCE price index rose 3.2% year-on-year in November, the smallest rise since April 2021.

The dollar index fell to a low of 101.42 on Friday, its weakest level since late July, and notched a weekly loss of over 0.8%. Despite the dollar index remaining under pressure amid rising bets on rate cuts in the United States, the rupee ended the week lower by 0.16%.

Given how the rupee has largely “remained on the sidelines,” amid dollar weakness, it is unlikely to see sizeable movement over the year’s final week, said Apurva Swarup, vice president at Shinhan Bank India.

The local unit is expected to stay in a range between 83.05 and 83.35 and trading volumes may remain muted heading into the year-end, Swarup added.

While the week is relatively sparse on economic data releases, investors will be keeping an eye on U.S. initial jobless claims data due on Thursday.

The dollar has remained under pressure amid rising bets that the U.S. Federal Reserve could soon start easing interest rates despite pushback from some Fed officials.

Investors are currently pricing in a slightly over 93% chance that the Fed will cut rates in March, according to the CME FedWatch tool.

Meanwhile, India’s 10-year benchmark bond yield ended two basis points higher last week at 7.1862%, after dropping 11 basis points in the preceding week.

Traders see the yield in a 7.15%-7.21% range this week, and expect volumes to remain shallow, with most market participants staying on the sidelines.

Focus would remain on U.S. Treasuries and whether the 10-year yield is able to breach key levels to touch fresh lows. Yields have been easing as investors expect Fed rate cuts to start soon.

“We do not expect any major action in the last week of the year, but come January, there should be some more downward movement in yields as things are favourable,” said Vijay Sharma, a senior executive vice president at primary dealership PNB Gilts.

India’s monetary policy committee (MPC) will remain vigilant of inflation risks, with the overall outlook remaining clouded by volatile and uncertain food prices, members of the committee said in the December policy meeting minutes, released on Friday.

The MPC, which consists of three RBI members and three external members, kept the repo rate unchanged at 6.50% for the fifth consecutive meeting earlier in December.

(Reporting by Dharamraj Dhutia and Jaspreet Kalra; Editing by Varun H K)