The anticipated rise of the Indian rupee at the opening on Monday is driven by the weakening of the dollar and US Treasury yields following concerns about the US growth outlook due to recent economic data.
The 1-month non-deliverable forward suggests that the rupee will start at 86.60-86.64 against the US dollar, an improvement from the previous session’s rate of 86.7125.
US business activity in February nearly came to a halt amid fears of tariffs on imports and cuts in federal spending, as indicated by data released on Friday. Additionally, US consumer sentiment dropped more than expected to a 15-month low, while inflation expectations surged.
According to ANZ Bank, soft US economic surveys indicated weakened expectations for future activity and the risk of longer-run inflation expectations becoming unanchored.
The decline in the 10-year US yield by around 8 basis points on Friday, coupled with a drop in US equities, contributed to the dollar index falling to 106.16 – its lowest level since mid-December. On the other hand, the euro strengthened against the US dollar post Germany’s election results, while most Asian currencies appreciated.
Despite the initial uptick due to the weaker dollar, a currency trader at a bank believes the rupee may not see much movement after the opening. The rupee traded within a range of 86.4750-86.98 last week, with the trader suggesting that a similar range may be maintained this week.
Furthermore, the Reserve Bank of India announced a longer duration dollar/rupee buy/sell swap to inject durable liquidity into the banking system. This swap is anticipated to soften the dollar/rupee forward premiums, marking the second swap auction conducted by the central bank in a month.
Overall, the rupee is expected to benefit from the dollar’s decline and softening US yields, with the potential for a stable range in the coming week.
