Rupee to likely hold narrow range on elevated risk appetite, U.S. yields

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The Indian rupee is expected to open little changed on Monday and hold a narrow range through the session due to upbeat risk appetite and a further uptick in U.S. yields.

Non-deliverable forwards indicate the rupee will open barely changed from 82.0375 in the previous session. Last week, the local currency traded in a range of less than 15 paisa.

“Most probably we are looking at a week where interbank will just have to play a barely 15 to 20 paisa range,” a forex trader said.

“There is a host of tier one U.S. data this week which, hopefully, will lend a bit of volatility.”

The ISM U.S. manufacturing data is due Monday, followed by their services print on Wednesday. U.S. private payrolls, jobless claims and the non-farm payrolls over Wednesday through Friday will provide cues on whether the labour market continues to be resilient.

Data out on Friday indicated that underlying price pressures in the United States remained sticky. Excluding the volatile food and energy components, the PCE price index climbed 0.3%, matching expectations.

The so-called core PCE price index, the Fed’s preferred measure of inflation, increased 4.6% year-on-year.

The 2-year U.S. yield peaked at 4.9350% on Friday, its highest since March, and is now less than 20 basis points off the highs in the current Federal Reserve rate hike cycle.

Futures are pricing in an 85% probability of another Fed rate hike this month. Morgan Stanley economists, who previously expected no rate hike this month, changed their call last week following hawkish comments from Fed Chair Jerome Powell.

“We now think the Fed will hike in July – our data forecasts have not changed, but our perception of the Fed’s reaction function now points to a significantly lower bar to hike,” they said.


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