Rupee, govt bonds to eye US inflation prints, Fed policy for cues

The Indian rupee will take cues from equity-related flows this week, while domestic and US inflation data, and the Federal Reserve's monetary policy decision will be major factors for the currency and government bonds.
 

The rupee closed at 83.3725 against the US dollar on Friday, up 0.1 per cent for the week.
 

The domestic currency faltered last week after a surprisingly weak election outcome for Indian Prime Minister Narendra Modi's alliance, but likely interventions by the Reserve Bank of India helped cap losses.
 

Stronger-than-expected US jobs data released on Friday prompted investors to pare expectations of rate cuts by the Fed, boosting the dollar and US bond yields. The 10-year US yield jumped 14 basis points to 4.42 per cent after the data.
 

Think it's likely that the rupee will see some pressure, but 83.50-83.55 continues to be a strong support zone, a foreign exchange trader at a foreign bank said.
 

While the Fed is widely expected to keep rates unchanged on Wednesday, investors will keep an eye on any changes to the interest rate dot plot and commentary from Chair Jerome Powell.
 

We expect one cut (over 2024) to be retained as the median, which leaves the FOMC's options open,” Societe Generale said in a note.
 

Inflation data is also due both in India and the US this week, with the latter being a more closely watched cue for the rupee.

Meanwhile, the 10-year Indian government bond yield ended at 7.0168 per cent on Friday, its first weekly rise in six.
 

Traders expect the benchmark bond yield to move in the 6.96 per cent-7.06 per cent range this week, with all eyes on the Fed policy outcome and guidance.
 

Indian bond yields jumped last week after a weaker majority for the PM Modi-led alliance raised fiscal concerns.
 

Bond yields stayed elevated as the RBI kept its key interest rate unchanged on Friday, saying robust economic growth will give it space to focus on bringing down inflation towards its medium-term target of 4 per cent.
 

The central bank also raised its economic growth outlook for the current fiscal year, but kept its outlook on inflation unchanged and warned of persistent price pressures on food.
 

"Should food inflation dynamics start to stabilize, we wouldn't rule out stance change in August with the prospects of modest rate cuts probably in play starting the October policy onwards," said Suyash Choudhary, head of fixed income at Bandhan AMC.

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