Interventions by the Reserve Bank of India helped cushion the rupee’s fall last week but traders say sentiment on the local currency is inclined towards further weakness. Merchant flows are skewed towards dollar demand and in the absence of the central bank’s dollar-sales, the rupee could see a quick decline, a trader at a private bank said.
“Market will test RBI’s resolve to defend the rupee. It will be interesting to see if the RBI continues to defend 88.80 resolutely or chooses to leave some powder dry in case the rupee weakens further,” forex advisory firm IFA Global said in a note. The focus will also be on the extent of portfolio flows two large initial public offers are able to attract. Indian eyewear retailer Lenskart’s float will close for bids on Tuesday while stock broker Groww’s $754 million IPO will open for bids on the same day.
For global markets, the focus is likely to be on remarks from U.S. Federal Reserve policymakers to gauge the future direction of interest rates after the Fed delivered a hawkish jolt in its commentary last week, alongside an expected cut. The dollar index ended up by 0.8% last week.
In the local market, India’s 10-year benchmark 6.33% 2035 bond yield settled at 6.5317% on Friday, up xx basis points week-on-week over about the RBI’s liquidity and interest rate trajectory.
Traders expect the benchmark yield to stay in the 6.50% to 6.60% band this week, with few catalysts apart from any potential central bank action to support sentiment. With uncertainty regarding Fed rate cut rising, there has been a spillover effect on bets of rate easing from the RBI next month. A majority of market participants had been anticipating an India rate cut in December and the market is still pricing in around 20 bps of easing from the RBI over the next few months.
Pricing for the December meeting has reduced to around 8-9 bps from 13-14 bps a few weeks ago, even as recent volatility in overnight rate fixing adds some uncertainty about pricing at the front-end of the yield curve, analysts at Nomura said in a note.
Foreign inflows into Indian government bonds are on the rise, with net purchases worth $1 billion in October, marking a third straight month of inflows of more than 75 billion rupees ($853.29 million).
KEY FACTORS: India ** October HSBC manufacturing PMI – November 3, Monday (10:30 a.m.) ** October HSBC services PMI – November 6, Thursday (10:30 a.m.)
U.S.
** October S&P Global manufacturing PMI final – November 3, Monday (8:15 p.m. IST)
** October ISM manufacturing PMI – November 3, Monday (8:30 p.m. IST)
** October ISM non-manufacturing PMI – November 5, Wednesday (7:30 p.m. IST) ** October S&P Global composite PMI final – November 5, Wednesday (8:15 p.m. IST)
** October S&P Global services PMI final – November 5, Wednesday (8:15 p.m. IST)
** October non-farm payrolls and unemployment rate – November 7, Friday (6:00 p.m. IST)
($1 = 87.8950 Indian rupees)
