India’s currency and government bonds are set to be influenced this week by developments in the Middle East crisis and a key U.S. inflation gauge, which will shape the interest rate outlook.
The rupee hit a record low of 83.5750 against the U.S. dollar on Friday amid concerns over escalating tensions in the Middle East and expectations of sustained high U.S. interest rates. Despite a 0.1% decline for the week, ending at 83.47, the Reserve Bank of India’s (RBI) intervention prevented larger losses.
Traders predict the rupee will trade in a range of 83.25 to 83.75 this week, with emerging market currencies feeling the pressure from Israel-Iran skirmishes.
“If there is more negative news on the Middle East, RBI would likely intervene heavily, as it has done in recent days,” said Kunal Kurani, associate vice president at Mecklai Financial.
The Federal Reserve’s hawkish stance has led investors to temper expectations for interest rate cuts. The U.S. core personal consumption expenditures price index, the Fed’s preferred inflation measure, due on Friday, will be closely watched for clues on future rate decisions ahead of the policy meeting next week.
Indian 10-year government bond yields ended at 7.2278% on Friday, up 5 basis points for the week. Traders expect yields to fluctuate between 7.16% and 7.27% this week, influenced by rising U.S. yields and oil prices.
“The recent rise in Indian bond yields has investors seeking value, anticipating easing later this year despite the RBI holding rates,” said treasury officials.
VRC Reddy, treasury head at Karur Vysya Bank, believes the benchmark bond yield will hover around 7.23%-7.25%. DBS Bank anticipates the yield to dip below 7% between July and December, viewing Indian government bonds as a good diversification trade for international debt market investors due to their “low beta” to global bond movements.
Key Events to Watch:
- U.S. April S&P Global manufacturing, services and composite PMI – April 23, Tuesday (7:15 p.m. IST)
- U.S. March new home sales – April 23, Tuesday (7:30 p.m. IST)
- U.S. March durable goods – April 24, Wednesday (6:00 p.m. IST)
- U.S. initial weekly jobless claims week to April 15 – April 25, Thursday (6:00 p.m. IST)
- U.S. January-March advance GDP – April 25, Thursday (6:00 p.m. IST) (Reuters poll 2.1%)
- U.S. March personal consumption expenditure, core PCE index – April 26, Friday (6:00 p.m. IST)
- U.S. April U Mich sentiment – April 26, Friday (7:30 p.m. IST)
The week ahead promises to be eventful, with these key indicators likely to provide further insights into the global economic landscape and its impact on India’s financial markets.