Strong foreign inflows buoy rupee, government bonds reverse losses

Strong foreign inflows mitigated the rise in dollar index, and the rupee settled 3 paisa higher at Rs .81.96 against the dollar on Friday. The Indian currency ended at Rs 81.99 per dollar on Thursday.

Dealers speculated that the Reserve Bank of India (RBI) intervened in order to contain volatility. It bought the Greenback to keep the Indian unit around Rs 82 per dollar. The dollar index rose up to 101.06 during the trading session on Friday.

The index measures strength in the Greenback against a basket of six major currencies.

“The RBI was there at around Rs 81.95 per dollar,” a dealer at a state-owned bank said. “For the next week, the rupee should be in the range of Rs 81.80-82.20 per dollar,” he said.

On Thursday, the dollar displayed strength against a basket of currencies. This follows the release of data indicating an unexpected decline in the number of Americans filing new claims for unemployment benefits last week.

This development has raised expectations that the Federal Reserve may continue to increase interest rates should the economy sustain its resilience.

Meanwhile, the government bonds reversed losses, and settled off the day’s lows as traders stocked up at psychologically-crucial yield levels. The benchmark 10-year bond settled at 7.08 per cent yield on Friday.

The yield on the 10-year bond touched the day’s high of 7.10 per cent, tracking a rise in US Treasury yields, dealers said. “The US yields rose to 3.85-3.86 per cent, so the yield went up to 7.10 per cent,” a dealer at a primary dealership said.

“After that, mutual funds bought aggressively at around 7.08-7.09 per cent yield. This is because they have a view that the yield might fall from here.”

Traders also eyed the upcoming US Federal Open Market Committee’s (FOMC’s) rate decision next week. The market largely expects the US rate-setting panel to hike the rates by 25 basis points.

“FOMC is a known event, but if there is any surprise because their statement is very hawkish, the US yields may touch 4 per cent again,” a dealer at a primary dealership said. “If not, then the market will stay here,” he added.

On the domestic front, traders lacked significant cues. They expect the RBI to keep the repo rate unchanged for the current calendar year. The market expects rate cuts, starting February.

However, if the Fed continues its rate hike cycle beyond July, the rate cut expectations may be pushed further, dealers said.