Rupee slips to 94.24 as oil and Fed rate bets blunt record $8bn inflow
The Indian rupee ended the week at 94.24, down 0.2% on the day and 0.3% week-on-week, as rising oil prices and expectations of a more hawkish Federal Reserve outweighed support from a surge in foreign portfolio inflows.
The inflows had earlier lifted the currency to an over six-month high. Overseas investors have net bought more than $8 billion of Indian stocks so far in November, with another $800 million going into local debt, helping the rupee recover from levels near a record low last month, when the Reserve Bank of India stepped up support by curbing dollar demand.
The tide turned as the two-year US Treasury yield, sensitive to rate expectations, hit a one-month peak while investors weighed the prospect of an outsized 50-basis-point Fed hike next month. Higher US yields and worries over renewed oil strength hit Indian stocks and bonds, with the 10-year bond yield rising more than 6 basis points to 7.31%. Data showing India's October merchandise trade deficit at a one-year high added to the strain on Friday.
Markets are watching for signs of RBI dollar-buying to rebuild reserves. "The RBI is likely to use periods of INR strength to rebuild reserves," ING said in a note. "While downside risks to INR have diminished, the scope for sustained appreciation remains limited, leaving the currency broadly stable rather than materially stronger."
India's foreign exchange reserves data for the week ended November 6 is due after market close.
