Rupee may weaken; yields expected to rise

The weakness in the rupee may continue this week as the currency experts expects dollar demand by state-run Oil Marketing Companies (OMCs) to continue in the market.

Economic affairs secretary Arvind Mayaram said on Thursday in news channels that 30-40% of the state-run oil companies' dollar demand has returned to markets. This led to the rupee's fall on Friday and post its worst week in two and a half months.

“The rupee may touch the Rs 63 per dollar this week. The weakening bias is expected to continue in the near-term,” said a currency dealer with a state-run bank.

The US payroll data released on Friday after market hours surprisingly showed strong US jobs growth in October and that may also lead to rupee's weakening at the start of the week.

On Friday the rupee ended at Rs 62.48 on Friday compared with previous close of Rs 62.42 per dollar. During intra-day trades the rupee had even dropped to Rs 62.75 per dollar. The recovery was only due to the Reserve Bank of India intervening in the market through state-run banks.

The inflation data to be released this week will provide direction to the movement of government bond yields. Economists believe that inflation is again becoming a concern due to which there may be another hike in the repo rate next month.

Friday the 10-year benchmark government bond yield inched up and ended at 8.99% compared with previous close of 8.85%.

“Yields will rise this week due to bond auctions in the absence of open market operations,” said a government bond dealer with a state-run bank. The street expect the yield on the 10-year benchmark government bond to breach the 9% mark this week.