Rupee to decline on rising US yields; 83/USD to be broken without assistance from RBI

On the heels of a rise in U.S. yields, which strengthened the dollar against its key competitors and Asian currencies, the Indian rupee is anticipated to fall on Monday. The rupee is forecast to open at about 82.92–82.94 to the dollar according to non-deliverable forwards, down from 82.8450 in the previous session.

The rupee was held steady last week in a constrained range, with the Reserve Bank of India (RBI) probably stepping in to stop the currency from falling below the important psychological threshold of 83.

On Friday, the 10-year U.S. yield increased by roughly 8 basis points (bps), and it was also somewhat higher in Asia. The 10-year U.S. yield is currently 16 basis points below its October 2022 highs, at 4.18%. Despite a slight decline in the University of Michigan survey’s indicator of long-term inflation forecasts, U.S. rates rose on Friday.

This demonstrated that “the movement in yields is more about supply”, according to a note from ANZ. Worries over supply have been fueled by a wall of issuance planned for the upcoming months, and Fitch’s downgrading of U.S. debt hasn’t helped, it claimed. On Friday, longer maturity yields also increased in the UK and Germany.

To start the week, Asian currencies were down between 0.2% and 0.6%. The offshore Chinese yuan fell to its lowest level in 1.5 months, 7.2775 to the dollar.

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