High oil prices may reverse rupee gain, yields to fall

After closing the week with a one per cent gain, the rupee is expected to depreciate against the dollar as oil importers take advantage of the higher level.

It closed at Rs 44.68 against the dollar on Friday, after an upward trend through the week, the biggest weekly gain in more than a month. It was up by 45p against the close on March 18. The gain was backed by huge dollar inflows and a strong local share market.

Dealers expect dollar buying from oil importers will impact the gain.

“There is no further value seen from the current levels and, hence, people will buy dollars to take advantage,” said R V S Sridhar, head of global markets, Axis Bank.

The rupee could trade between Rs 44.50-45 against the greenback next week, he said. Unrest in the major oil producing countries in West Asia and North Africa has led to uncertainty on the direction of prices. This, in turn, will have an impact on how the global currencies perform.

11-year government bond
The 11-year bonds completed a weekly gain as yields fell to this year’s lowest level, with the market cheering the lower than expected government borrowing plan for the first half of financial year 2011-12.

Yields may fall further, as banks usually dress their books towards the end of the financial year. Demand will be high, as banks will meet their Statutory Liquidity Ratio requirements. Also, absence of a fresh supply of bonds until the next financial year may push prices further.

Yields on the most traded 11-year, 8.13 per cent government bond settled at 8.02 per cent on Friday. According to the calendar released by the Reserve Bank of India, the government will borrow Rs 2.5 lakh crore or 60 per cent of its entire year’s borrowing need of Rs 4.17 lakh crore. The market was anticipating the government would borrow 65 per cent or Rs 2.7 lakh crore between April-September.