Rupee might fall; yields could rise

On Thursday, the rupee had depreciated to 63.42 to a dollar, compared with the previous close of 63.31 to a dollar

The rupee is expected to weaken further this week. Currency experts are not ruling out the possibility of the currency touching 64 against the dollar in the near future, as foreign flows into debt have been slowing.

The rise in government bond yields might continue, due to concerns on rising global crude oil prices and monsoon stress.

The rupee had depreciated to 63.42 to a dollar on Thursday, compared with the previous close of 63.31 a dollar, owing to the month-end dollar demand from importers. Maharashtra Day fell on Friday; currency and the bond market were closed.

Currency dealers see the broad trading range for the rupee as 63.25 to 63.75 this week, with a bias towards weakening. The only positive factor for the rupee is that the foreign exchange reserves of the central bank had reached an all-time high of about $345 billion for the week ended April 24.

For the month ended April 30, government bonds had completed their worst month since September 2013, on concerns of rising oil prices and the prospects of inadequate rains reducing the scope of further rate cuts by the Reserve Bank of India. Bond yields inched up to a three-month high on Thursday and traders trimmed their holdings ahead of the long weekend.

On Thursday, the yield on the 10-year benchmark bond had ended at 7.86 per cent, compared with the previous close of 7.81 per cent.

“This week, the yield on the 10-year bond may trade in the range of 7.80 per cent to 7.90 per cent and the bias is towards yield touching 7.90 per cent. Besides, even foreign investors have been selling bonds. Every week there is a bond auction by the central bank though there isn’t much demand for bonds,” said a bond trader with a state-run bank.