Rupee hits six-week high as US rate hike fears ease

Yield on benchmark bond drops to 27-month low

The rupee ended at a six-week high on Monday as concerns of an early rate hike by the US Federal Reserve eased after US non-farm payrolls rose by 142,000 in September, considerably lower than the 203,000 jobs the markets had expected. The rupee had opened at 65.26 and during intra-day trades, it touched a high of 65.20 before closing at 65.30 compared with the previous close of 65.51/dollar. The rupee had ended at 65.27/dollar on August 19 this year.

“The non-farm payroll data was weak due to which all Asian currencies were strong against the dollar. There was some dollar buying by oil importers on Monday but there were also healthy flows by foreign investors to support the rupee. The rupee may not breach 65/dollar and the broad trading range is seen between 65 and 65.75 till October 15,” said Sandeep Gonsalves, forex consultant and dealer, Mecklai & Mecklai.

The rupee has appreciated 1.3 percent in the past five days which was its longest winning streak since July as RBI relaxed curbs on foreign ownership of debt, last week.

Last month US Federal Reserve chairwoman Janet Yellen had communicated her intention to raise interest rate in the current calendar year itself. But the weak jobs report, which also showed a stall in US hourly wage growth, has raised doubts that the economy was robust enough to withstand a rate hike this calendar year.

Even government bond yields fell on Monday due to the weak US data. The yield on the 10-year benchmark bond fell to a an 27-month low at 7.51 per cent compared with previous close of 7.56 per cent. The yield on the 10-year bond had ended at 7.5 per cent on July 5, 2013.

"The yield may fall by and additional 5-10 basis points in the next few days as the fear of rate hike by the US Fed in 2015 is seen easing," said a bond trader with a state-run bank. Government bond yields began falling since last month after the Reserve Bank of India (RBI) reduced the repo rate or the rate at which banks borrow from the central bank by 50 basis points to 6.75 per cent as against the market expectation of a 25 basis points rate cut.

Bond traders believe the yield on the 10-year benchmark bond is heading towards 7.25 per cent as the other factor contributing to the fall is the recent enhancement by the central bank in the investment limit in government bonds by Foreign Portfolio Investors (FPIs).