The Indian rupee was weaker on Monday due to a rise in U.S. bond yields, putting pressure on most Asian currencies. The rupee stood at 83.46 against the U.S. dollar as of the morning of the session, compared to its previous close at 83.3825. The offshore Chinese yuan also dropped along with other Asian currencies, while the dollar index decreased by 0.1% to 105.6. The weakness in the yuan and the Japanese yen has contributed to the downward trend in Asian currencies, with expectations that further declines could affect the rupee.
Lloyd Chan, a senior currency analyst at MUFG Bank, noted that the Chinese central bank’s “fixing rate for USD/CNY has been increasing, signaling their acceptance of a weaker yuan.” The onshore spot yuan is only allowed to trade within a 2% range around the mid-point set by the People’s Bank of China. On the other hand, U.S. inflation data indicated a cooling off, but the anticipation of a second term for former President Trump led to an increase in U.S. bond yields, with the 10-year yield rising by 5 basis points to 4.39% on Friday.
India’s recent inclusion in the JPMorgan emerging market debt index boosted the rupee last week. However, the inflows following the inclusion, amounting to about $198 million, were lower than expected by bankers. With the U.S. non-farm payrolls report and other key data releases forthcoming, traders anticipate the rupee to remain under pressure. A foreign exchange trader mentioned that they don’t foresee much downside in USD/INR, expecting the support at 83.30 to hold unless there are further declines in the dollar index.
In conclusion, the Indian rupee faced weakness against the U.S. dollar due to the rise in U.S. bond yields affecting most Asian currencies. The offshore Chinese yuan and other Asian currencies also experienced downward trends. The anticipation of a weaker yuan from the Chinese central bank and the possibility of a second term for former President Trump contributed to the increase in U.S. bond yields. Despite India’s inclusion in the JPMorgan emerging market debt index, lower than expected inflows and upcoming U.S. economic data releases suggest ongoing pressure on the rupee. Traders are closely monitoring the situation and the performance of the rupee against the dollar.
