MUMBAI, Jan 1 (Reuters) – The Indian rupee is likely to
take cues this week from moves in the dollar index while keeping
an eye on key U.S. labour market data, and bond yields are
expected to trend lower going into 2024.
The rupee ended slightly lower at 83.2075
against the U.S. dollar on Friday, pressured by dollar demand
from importers and a slight recovery in the dollar index.
Investors are currently pricing-in an 85% chance of a U.S.
rate cut in March, per the CME Group’s FedWatch tool.
The domestic unit ended 2023 down about 0.5%
year-on-year and logged its sixth straight annual decline.
Through last week, the rupee remained in a range between 83.10
and 83.35.
“Our view is that rupee should appreciate from here amid
broadly supportive global cues,” said Abhilash Koikkara, head of
forex and rates at Nuvama Professional Clients Group.
If the labor market data reinforces the view of potential
cooling in the U.S. economy, the dollar index may decline
further, aiding the rupee, Koikkara added.
Other key U.S. data scheduled for release this week include
initial jobless claims on Thursday, followed by the closely
watched non-farm payrolls and unemployment print on Friday.
The non-farm payrolls likely fell to 158,000, down from
199,000 in November, according to a Reuters poll.
A pickup in foreign inflows into Indian markets has also
offered some support to the rupee, but the domestic unit has
been unable to gain much as the central bank likely intervened
in last few weeks to absorb the inflows, according to traders.
Of the total $28.7 billion of inflows into Indian
equities and bonds in 2023, about $10.1 billion came in December
alone, according to NSDL data.
Meanwhile, Indian government bond yields are expected to
fall further, with attractive levels enticing value investors.
India’s 10-year benchmark bond yield ended
marginally lower last week at 7.1754%, after rising the
preceding week.
Traders expect the yield in the 7.10%-7.20% range this week,
and anticipate volumes to pick up after shallow trading in the
last week of 2023.
The Indian government bond yield curve is set to steepen in
2024 as bets of rates cuts from the Federal Reserve and Reserve
Bank of India gather steam. Bonds will also remain supported as
state-run banks, the largest holders of bonds and which were net
sellers in November and December, are expected to turn into
buyers, traders said.
Investor focus will also turn to U.S. Treasuries and whether
the 10-year yield is able to breach new levels after
easing below the key technical level of 3.85% towards the end of
December.
Market participants have aggressively bet on U.S. rate cuts
and are eyeing over 150 bps of cuts in 2024, even though the Fed
has signalled only 75 bps of cuts.
“Bonds over the next quarter are likely to remain
range-bound, with a mildly bullish bias on the back of global
bond sentiment and in anticipation of eventual moderation in
headline inflation in the coming quarters,” said Sandeep Bagla,
CEO of Trust Mutual Fund.
KEY EVENTS:
** U.S. Dec S&P Global manufacturing PMI – Jan. 2, Tuesday (8:15
p.m. IST)
** India Dec S&P Global manufacturing PMI – Jan. 3,
Wednesday (10:30 a.m. IST)
** U.S. Dec ISM manufacturing PMI – Jan. 3, Wednesday (8:30
p.m. IST)
** U.S. Jan-Mar overall comprehensive risk – Jan. 3
Wednesday (10:30 p.m. IST)
** U.S. initial weekly jobless claims week to Dec. 25 – Jan.
4, Thursday (6:00 p.m. IST)
** U.S. Dec S&P Global services and composite PMI – Jan. 4,
Thursday (8:15 p.m. IST)
** India Jan-Mar overall comprehensive risk – Jan. 5, Friday
(8:30 a.m. IST)
** India Dec S&P Global services PMI – Jan. 5, Friday (10:30
a.m. IST)
** U.S. Dec non-farm payrolls and unemployment rate – Jan.
5, Friday (7:00 p.m. IST)
** U.S. Nov factory orders – Jan. 5, Friday (8:30 p.m. IST)
** U.S. Dec ISM non-manufacturing PMI – Jan. 5, Friday (8:30
p.m. IST)
(Reporting by Dharamraj Dhutia and Jaspreet Kalra; Editing by
Sonia Cheema)
