Rupee nudges up on lower US bond yields, forward premiums rise

By Jaspreet Kalra

MUMBAI (Reuters) – The Indian rupee ended slightly stronger on Thursday, tracking firmer Asian peers amid a decline in U.S. bond yields, although gains were curbed by local dollar demand.

The rupee closed at 83.4925 against the U.S. dollar, slightly higher than its close at 83.53 in the previous session.

The dollar index was at 105.2, while most Asian currencies rose with the Chinese yuan up about 0.1% and the Japanese yen nearly 0.3% higher.

Pressure on the yen and yuan had kept Asian currencies on the defensive over recent trading sessions but soft U.S. economic data on Wednesday helped ease the depreciation pressure.

Elevated demand to buy dollars at the Reserve Bank of India’s daily reference rate, called the “daily fix”, slightly weakened the rupee earlier in the session, traders said.

The rupee ticked up after demand eased later in the session, with mild dollar sales from foreign banks also helping the currency, a foreign exchange trader at a state-run bank said.

Meanwhile, dollar-rupee forward premiums rose with the 1-year implied yield up 2 basis points at 1.64% aided by a decline in U.S. bond yields.

The 10-year U.S. Treasury yield fell 9 basis points on Wednesday after data signalled that the economy is cooling, which helped push the odds of a September interest rate cut above 70%, according to CME’s FedWatch tool. U.S. markets are shut on Thursday due to the Independence Day holiday.

The U.S. non-farm payrolls report, due Friday, is the next closely watched data point for cues on the Fed’s policy rates trajectory.

“As many indicators point at a weakening of U.S. labour markets, we continue to see three rate cuts this year in our baseline view as opposed to just the two priced in by markets,” ING Bank said in a note.

(Reporting by Jaspreet Kalra; Editing by Eileen Soreng)


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