Rupee seen strengthening; yields likely to fall

The rupee is expected to strengthen and bond yields fall this week. According to dealers, the absence of month-end dollar demand from importers will help the rupee this week.

The yield on the 10-year benchmark bond 7.16 per cent 2023 ended at 7.45 per cent on Friday, compared with the previous close of 7.56 per cent. The rupee ended at Rs 59.39 on Friday, compared with the 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, a fall in most emerging Asian currencies and continued selloff by foreign institutional investors (FIIs) in domestic markets.

However, the rupee found support on Friday after the US Fed downplayed the notion that its bond-buying programme, also known as the third round of quantitative easing, would be tapered off as the US economy strengthens and payrolls data perk up. The strengthening rupee also helped bond yields to fall.

"The yield on the 10-year benchmark government bond 7.16 per cent 2023 may trade in the range of 7.42-7.47 per cent 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.