Rupee, government bond gain post favorable US non-farm payroll data

The central bank had not given any timeline for OMO sales and said it will depend on the ongoing liquidity situation

The rupee gave up some early gains by the end of trade on Monday and settled 7 paisa lower at 83.22 a dollar against 83.29 on Friday due to equity outflows, dealers said.

The rupee opened 14 paisa stronger against the greenback due to fall in the dollar index after lower-than-expected US non-farm payroll data. Additionally, the US unemployment rate came in higher-than-expected at 3.9 per cent against the expected 3.8 per cent.

“After the jobs data, the dollar index was down, so the rupee opened higher,” a dealer at a state-owned bank said.

“Later, foreign banks were buying (dollars) and there was some equity outflow. That is why it (rupee) depreciated,” he added.

Market participants speculated that the Reserve Bank of India (RBI) intervened in the foreign exchange market to protect the rupee from weakening further.

“The RBI was there at around 83.24 per dollar level,” a dealer at another state-owned bank said. “The nationalised banks sold dollars on behalf of them,” he added.

The yield on the benchmark 10-year US treasury bond fell after the favourable data on Friday. This, in turn, weighed on the domestic government bond yields in early trade.

However, traders refrained from placing large bets due to continued uncertainty around the open market operation (OMO) auction by the RBI, dealers said.

Yield on the benchmark 10-year government bond settled flat at 7.31 per cent against Friday.

“The positivity is being faded by speculations around OMO,” a dealer at a primary dealership said. “People are not comfortable to buy at 7.29-7.30 levels, until there is clarity around the auction,” he added.

Some traders sold bonds at a profit which further aided yields, dealers said.

“Those who bought around 7.34-7.35 per cent, sold today (Monday),” a dealer at a primary dealership said.

RBI Governor Shaktikanta Das had said in his monetary policy statement that the central bank may conduct OMO to mop up liquidity. The RBI had not given any timeline for OMO sales and said it will depend on the ongoing liquidity situation. 

Banking system liquidity eased back to surplus mode on Friday on the back of government spending and maturity of government bonds.

Banks parked Rs 37, 975 crore with the RBI on Sunday. The amount was Rs 13,521 crore and Rs 31,871 crore on Friday and Saturday, respectively.

Government bonds of around Rs 1.4 trillion are scheduled to mature in November. Of this, Rs 53,925 crore bonds matured in the first week.