Rupee seen strengthening; yields expected to fall

The yield on 10-year benchmark bond 7.16% 2023 ended at 7.45% on Friday compared with previous close of 7.56%

The rupee is expected to strengthen further this week and bond yields are expected to fall. According to dealers there is an absence of month-end dollar demand from  importers this week due to which the rupee will strengthen.

The yield on the 10-year benchmark bond 7.16% 2023 ended at 7.45% on Friday compared with previous close of 7.56%. The rupee ended at Rs 59.39 on Friday compared with previous close of Rs 60.20.

“The rupee is expected to trade in the range of Rs 58.60 to Rs 59.50 per dollar this week and the bias is more towards strengthening,” said a currency dealer with a public sector bank.

This month the rupee touched an all-time low in intra-day trades at Rs 60.77 due to heavy month-end dollar demand from importers, fall in most emerging Asian currencies and continued sell off by Foreign Institutional Investors (FIIs) in domestic markets.

However, rupee also found support on Friday after US Fed downplayed the notion that they would bring an imminent end to its bond-buying programme also known as third round of quantitative easing (QE3). The strengthening rupee also helped bond yields to fall.

“The yield on the 10-year benchmark government bond 7.16% 2023 may to trade in the range of 7.42-7.47% this week,” said Mohan Shenoi, president - group treasury and global markets, Kotak Mahindra Bank. According to Shenoi US treasury yields have started falling due to which domestic treasury yields will also fall.