Rupee might fall next week, bond yield could rise

The rupee is expected to weaken further this week, while bond yields are biased towards being elevated. The weakness might be due to the month-end dollar demand from importers while bond yields could get impacted due to poor monsoon outlook for this year.

The rupee weakened to an over three-month low against the dollar on Friday, as foreign funds pulled out from domestic debt after the trade deficit widened and the government said overseas investors would have to pay a retrospective tax. Currency dealers say the next resistance for the rupee might be at 63.80 and if that breaks, the rupee can even touch 64 this week.

"The overall bias for the rupee is towards weakness. Sometime this year, the rupee might even breach 65 to a dollar due to outflows from domestic markets on account of US Fed's rate increases," said a currency dealer. On Friday, the rupee ended at 63.56, compared with the previous close of 63.32 to a dollar. On January 6, the rupee had ended at 63.57.

Badrish Kulhalli, head of fixed income at HDFC Life, said, "The yield on the 10-year bond might trade in the range of 7.72 to 7.80 per cent this week. Sentiments are still a downbeat."

The yield on the 10-year benchmark bond ended at 7.79 per cent on Friday, compared with the previous close of 7.76 per cent.