Rupee may weaken further; yields expected to rise

The rupee is expected to weaken further this week due to month-end dollar demand from importers.

Tracking the movement of the rupee, government bond yields are expected to remain at elevated levels. However, the Street believes that the Reserve Bank of India (RBI)'s intervention in the foreign exchange market will continue, due to which the rupee may not weaken significantly.

"The rupee may weaken, and touching the level of 64 a dollar this week cannot be ruled out due to month-end dollar demand from importers," said a currency dealer with Mecklai & Mecklai. "Besides that, dollar demand from state-run oil marketing companies (OMCs) is expected to continue."

The rupee ended stronger on Friday against the dollar due to RBI intervention. The rupee ended at 62.83, compared with the previous close of 62.94 a dollar. The rupee had opened at 62.90 and touched a high of 62.84 and a low of 63.08 during intra-day trades. The currency breached the 63-a-dollar mark in early trades.

Government bond yields might rise, tracking the weakness of the rupee against the dollar. The yield on the 10-year benchmark government bond 7.16 per cent 2023 ended at 9.10 per cent, compared with the previous close of 9.08 per cent.

"The yield on the 7.16 per cent 2023 government bond may trade in the range of 9.05 per cent to 9.15 per cent this week. The bias is more towards yields rising," said a government bond dealer with a public sector bank.