The rupee and government bonds weakened on Friday after the yield on the benchmark 10-year US Treasury bond surged by around 10 basis points to reach 4.29 per cent, and the Dollar Index rose by 0.57 per cent, climbing to 103.50.
The hardening of US yields was due to a significant uptick in the Producer Price Index (PPI) prices, surpassing expectations. Consequently, investors are contemplating whether the Federal Reserve might delay rate cuts longer than expected. According to CME’s FedWatch tool, rate cut expectations for June fell to 61 per cent from 74 per cent a week ago.
“There is technical resistance around Rs 82.97 a dollar. The rupee should trade in the current band until the US Federal Reserve meeting next week,” said a dealer at a large state-owned bank. “The rupee might breach Rs 83 a dollar on March 29, as it is a non-trading day for us due to Good Friday, but the US market will be open, and trades will occur in the NDF (non-deliverable forward) market,” he added.
Arbitrage trades between the outright foreign exchange over-the-counter (OTC) and the NDF markets allow investors to capitalise on price differentials among securities across various markets. However, such trades have the potential to amplify price trends.
Meanwhile, the yield on the benchmark 10-year government bond rose by 2 basis points to settle at 7.06 per cent on Friday, against 7.04 per cent on Thursday.
“Our market is relatively better placed than the US, owing to the inflows. There is resistance around 7.07-7.08 per cent (yield on the benchmark bond),” a dealer at a state-owned bank said. “There shouldn’t be much selling as the domestic market is quite resilient,” he added.
The market was driven by traders due to the absence of significant domestic cues, dealers said. Traders await the outcome of the US Federal Reserve meeting scheduled on March 20.
“The volume is low due to a lack of cues, but we have events lined up that should lend some direction to the market,” said a dealer at a primary dealership.
First Published: Mar 15 2024 | 6:13 PM IST