By Jaspreet Kalra and Khushi Malhotra
MUMBAI (Reuters) -The Indian rupee is likely be rangebound this week as markets watch for updates on U.S.-India trade talks, while bond traders await a possible announcement on the central bank’s surplus transfer to the government.
The rupee closed at 85.5050 on Friday, down 0.1% week-on-week as steady dollar demand from local firms and foreign banks offset gains in most Asian peers.
Traders expect the rupee to be guided by news of ongoing trade negotiations, which could also influence foreign portfolio flows into Indian equities.
Foreign investors have net bought a little over $2 billion of Indian stocks so far but have been net sellers of domestic bonds.
Importer hedging activity picked up last week and if that persists, the rupee could remain below the 85.50 level, a salesperson at a large foreign bank said.
While technical indicators are skewed in the local currency’s favor, the trend may change if the rupee weakens below the 86 mark, said Dilip Parmar, a foreign exchange research analyst at HDFC Securities.
The data release calendar is relatively light this week which will keep the focus on U.S. trade negotiations with multiple countries. Remarks from Federal Reserve policymakers will also be in focus to gauge the future of U.S. policy rates.
Meanwhile, Indian bond yields are expected to lumber sideways with traders already positioned for a dovish central bank outlook. The yield on the 6.79% government bond maturing in 2034 IN067934G=CC dropped around 11 basis points this week, closing at 6.2682%, hovering near levels last seen in October 2021. The yield on the new 10-year benchmark 6.33% bond maturing in 2035 was at 6.2233%, versus its previous close of 6.2302%. “Bond yields should remain range-bound going ahead, with old 10-year finding support around 6.25% and new 10-year between 6.20% – 6.30% as traders have positioned themselves ahead of a rate cut,” Debendra Kumar Dash, senior vice president of treasury at AU Small Finance Bank.
Investors will also watch out for the Reserve Bank of India’s meeting on the surplus transfer for the year, which some traders said is likely to happen next week
A large surplus transfer to the government may impact further bond purchases by the central bank, so we will watch for further cues on the central bank’s debt purchase plan, Dash said. The Reserve Bank of India is scheduled to purchase 250 billion rupees of bonds on Monday, it’s last such purchase scheduled for May. There will some GST outflows likely next week, so traders will closely eye liquidity levels, a trader with a state-run bank said. KEY EVENTS: ** HSBC India Manufacturing Flash PMI – May 22, Thursday (10:30 a.m. IST)
** HSBC India Services Flash PMI – May 22, Thursday (10:30 a.m. IST)
** U.S. initial jobless claims – May 22, Thursday (6:00 p.m. IST)
** U.S. April existing home sales – May 22, Thrusday (7:30 p.m. IST)
** U.S. April new home sales – May 23, Friday (7:30 p.m. IST)
(Reporting by Jaspreet Kalra, Khushi Malhotra)
