Rupee seen weaker as US yields and dollar strength weigh
The Indian rupee is expected to open mildly weaker on Tuesday, traders said, weighed by a rise in long-dated US Treasury yields and euro-led dollar strength. They put the opening range at 96.32-96.34 to the dollar, after the currency settled at 96.2925 on Monday. That leaves it roughly 0.6% away from its all-time low of near 96.96, touched in May.
The currency has come under pressure over the past month as the external backdrop has grown more challenging, with elevated oil prices, rising US Treasury yields and foreign equity outflows adding to dollar demand, according to traders. "The way things are, it's only a matter of time before we see 97," one currency trader at a bank said, adding that while the RBI may have something to say about that, recent intervention suggested it would not necessarily draw a line at a particular level if underlying pressures persisted.
The Reserve Bank of India has been increasingly active in the market, selling dollars when the rupee comes under strain, which traders say has helped temper the pace of its decline but has not reversed it.
The dollar index has climbed past 102, supported by weakness in the euro and rising longer-dated US Treasury yields, and is hovering near its highest level since April last year. The euro has been weighed down by political uncertainty and fiscal concerns across the euro zone. Meanwhile, 10- and 30-year Treasury yields have hit fresh 24-year highs as a recent selloff in bonds persists.
Data released on Monday showed US services-sector activity remained broadly resilient in August, adding to upward pressure on yields. The survey's measure of prices paid by businesses for inputs also jumped during the month, which the survey suggested may point to more persistent inflationary pressures.
