Rupee gives up index inclusion-led rally; RBI counted on to help

By Jaspreet Kalra

MUMBAI (Reuters) - The Indian rupee dropped on Monday, losing momentum from JPMorgan's inclusion of Indian bonds in its index, amid pressure due to dollar demand from importers and high U.S. yields.

The rupee was at 83.12 against the U.S. dollar by 11:00 a.m. IST compared with 82.93 in the previous session. The dollar index was largely flat in Asia, but remained near 6-month highs.

Month-end dollar demand from importers, including oil companies, will keep the rupee under pressure, a foreign exchange trader at a state-run bank said.

"But it won't weaken below 83.20 as RBI is likely to protect those levels."

The rupee had strengthened to 82.8225 on Friday on news that Indian bonds will be included in JPMorgan's widely-tracked emerging market debt index, but the rally has not held up in wake of worries over U.S. yields.

The 10-year U.S. Treasury yield was higher in Asia at 4.46% and the 2-year yield was at 5.10%, not to far away from multi-year highs.

The offshore Chinese yuan weakened against the dollar, while Brent crude futures were slightly higher.

"As long as 82.80 holds, bias on the rupee will be towards depreciation," said Dilip Parmar, a foreign exchange research analyst at HDFC Securities.

The local unit is likely to stay below 83 over the next couple of days, Parmar added.

Indian portfolio flows have turned weak this month, as foreign investors have turned net sellers of Indian equities in September and are about to snap a 6-month buying streak, according to NSDL data.

Investors will now be keeping a keen eye on U.S. second-quarter GDP data and core personal consumption expenditure (PCE) inflation numbers due later this week, for further cues on how the U.S. Federal Reserve may act on policy.

 

(Reporting by Jaspreet Kalra; Editing by Varun H K)