By Nimesh Vora and Dharamraj Dhutia
MUMBAI: The Indian rupee and government bond yields are expected to trade in a narrow range amid thin volume this week, the last of 2022, due to the lack of major triggers, with the rupee also likely to continue to benefit from the central bank’s support.
Last week, the rupee ended little changed at 82.8575 per dollar. It has held a narrow range due to dollar sales near the 82.85-82.90 levels.
The local currency fell below 82.80 each day last week but stopped short of hitting 83 due to these dollar sales by state-run banks on behalf of the Reserve Bank of India, traders said. The rupee’s record low is 83.29.
The currency will likely move in an 82.50-83.20 range this week, traders said, with the absence of any major U.S. economic data putting the focus on the worsening global risk appetite.
The fear of major central banks continuing with rate hikes for longer and worries about the surging coronavirus cases in China are impacting risk-taking. Indian equities tumbled 2.4% last week, their worst performance in six months.
“The USD/INR remains stuck in a range even though global risk sentiments are worsening at the margin,” said Anindya Banerjee, head of research for FX and interest rates at Kotak Securities.
“A clear breakout can be confirmed once prices trade above the previous all-time high (of 83.29). Till then we are betting on rangebound price action, but with an upward drift.”
Indian government bond yields, too, may remain largely rangebound in thin trading volume as the majority of market participants stay away near the end of the quarter, and year.
Sentiment weakened last week after the minutes of the RBI’s latest meeting showed policymakers remained worried about inflation and said a premature pause in monetary policy would be a costly policy error at this juncture.
The RBI raised the repo rate by 35 basis points to 6.25% at that meeting earlier this month, taking the aggregate quantum of rate hikes to 225 basis points in 2022.
The benchmark government bond yield ended at 7.3179% on Friday, having risen four basis points in the week.
It is expected to move in a narrow 7.26%-7.34% range this week, market participants said.
The benchmark bond yield is definitely near its top-end and once market participants resume active trading, we may see the yield easing from January,” said Rajeev Pawar, head of treasury at Ujjivan Small Finance Bank.
“But there will be a very thin-ranged trading this week, with the focus on oil prices and U.S. yields.”
Also Read:
With some key provisions launching on January 1, government and industry officials say hundreds of billions of dollars’ worth of new clean energy incentives – potentially unlocking trillions of dollars of new investments – are at stake.
Tajikistan, Cuba, Luxembourg and Sudan have begun talking to India about using the mechanism, according to two sources and an official document reviewed by Reuters. It has already been used by Russia following the imposition of sanctions on Moscow over the Ukraine war. The Reserve Bank of India (RBI) set up the mechanism in July.