Rupee could fall to near 81 to the dollar on rising US yields and importer hedging

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MUMBAI – The Indian rupee is expected to extend its decline to a new high on Friday, helped by Treasury yields hitting new multi-year highs and demand for dollars from importers.

The Rupee is expected to open at around 81 per US Dollar, from 80.86 in the previous session.

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On Thursday, the local unit suffered its biggest single-session percentage decline since February, due to the lack of aggressive intervention from the Reserve Bank of India (RBI) and a very hawkish rate outlook from the Federal Reserve. American, the traders said.

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In the last hour of trading on Thursday, the local unit had accelerated its decline and closed at the low of the day.

“Just based on yesterday’s momentum, the pair (USD/INR) will hit 81 in early trade,” a Mumbai-based bank currency broker said.

“You can expect more import activity today, and speculators will test the RBI again.”

The rupee, after a period of outperformance, was among the biggest losers among its Asian peers on Thursday.

The 10-year US Treasury yield climbed above 3.70% and the two-year yield hit a high of 4.16%.

The latest sell-off in the bond market was fueled by Fed officials’ so-called point projections that rates could hit 4.4% by the end of this year.

This implies more rate hikes of around 125 basis points in the two remaining meetings in 2022.

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US stocks fell overnight, with the S&P 500 index falling to its lowest level in more than two months.

The US benchmark is down around 21% since the start of the year. In contrast, Indian equities were a little higher for the year.

The fall in rupee premiums to the lowest level in more than a decade should help importers to a small extent, traders said.

On Thursday, the implied yield on the 1-year rupiah futures premium fell below 2.75%. KEY INDICATORS: ** 1-month forward non-deliverable rupee at 81.26; One-month onshore futures premium at 21 paise ** USD/INR NSE September futures closed Thursday at 80.9425 ** USD/INR futures premium for the current month end is 1.5 paises ** Dollar index up at 111.3 ** Brent futures down 0.3% at $90.2 a barrel ** US 10-year note yield at 3.72% ** SGX Nifty futures the nearest month down 0.5% to 17,547 **According to NSDL data, foreign investors sold $34.8 million net worth of Indian stocks on September 29 . 21 ** NSDL data shows that foreign investors sold $132.4 million net of Indian bonds on September 21 (report by Nimesh Vora; editing by Neha Arora)


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