The Indian rupee and government bonds are expected to be supported by capital flows following the inclusion of domestic bonds in JPMorgan’s emerging market debt index this week, while key US inflation data is also expected provide additional guidance.
The rupee closed at 83.5325 against the US dollar on Friday, little changed week-on-week. The currency hit a record high of 83.6650 on Thursday, pressured by dollar outflows and a weak Chinese yuan.
About $2 billion in inflows are expected around June 28 due to India’s inclusion in the widely followed JPMorgan index, which is expected to help the rupee, traders said.
Given the inflows, the rupee may post some gains this week, said a foreign bank forex trader. While any further weakness in the Chinese yuan will be decisive, “I don’t think the Reserve Bank of India (RBI) will allow uncontrolled movements in the rupee,” the forex trader added.
The market will also focus on other U.S. economic data, including core personal consumption expenditures (PCE) inflation – the Federal Reserve’s preferred inflation gauge – due June 28.
The dollar-rupee pair is expected to trade with a “buy on dips” bias this week, drifting in the 83.40-83.80 range, said Abhilash Koikkara, head of currencies and rates at Nuvama Professional Clients Group.
Meanwhile, the 10-year Indian government bond yield ended at 6.9723%% on Friday, easing by 1 basis point (bps), after easing by 3 bps during the week former. Traders expect the benchmark yield to move in the 6.92%-7.00% range this week.
Bond yields followed US yields lower last week on bets of 50 basis points of Fed rate cuts in 2024. Markets are now bracing for the inclusion of Indian government bonds in the JPMorgan Emerging Markets Debt Index on June 28.
“The inclusion in the index is a major event for the bond market, and we may see some easing in yields,” said Abhishek Upadhyay, senior economist at ICICI Securities Primary Dealership.
Last week, inflows into bonds under the Fully Accessible Route (FAR) crossed the $10 billion mark, since the inclusion was announced in September last year.
Foreign investors have shifted away from short-term bonds to longer-term bonds, with maturities of nine years and above now accounting for almost 60% of purchases since September.
KEY EVENTS: ** US Consumer Confidence in June – June 25, Tuesday (7:30 p.m. IST) ** US New Home Sales in May – June 26, Wednesday (7:30 p.m. IST) ** Weekly Initial Jobless Claims in the United States week of June 17 – June 27, Thursday (5:30 p.m. IST) ** Durable goods in the United States in May – June 27, Thursday (6:00 p.m. IST) ** Final US GDP January to March – 27 June, Thursday (6:00 p.m. IST) ** India’s fiscal deficit in May – June 27, Thursday (6:00 p.m. IST) ** India’s fiscal deficit in May – June 27, Thursday (6:00 p.m. IST) ** Fiscal deficit in Germany – June 27, Thursday (6:00 p.m. IST) ** Germany Budget Deficit – June 27, Thursday (6:00 p.m. IST) ** Germany Budget Deficit – June 27 (6:00 p.m. IST) ** India: May fiscal deficit data – June 28, Friday (3:30 p.m. IST) ** India: May infrastructure production data – June 28, Friday (5:30 p.m. IST) ** United States: May personal consumption expenditure , Core PCE Index – June 28, Friday (6:00 p.m. IST) ** US: June U Mich sentiment – June 28, Friday (7:30 p.m. IST) (Reporting by Dharamraj Dhutia and Jaspreet Kalra; Edited by Sonia Cheema)
