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Rupee weakens to two-and-a-half-month low as bond yields rise on rising oil prices

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India’s benchmark 10-year bond yield rose two basis points to 6.28 per cent

The rupee fell to its lowest level in two-and-a-half months against the US dollar on Wednesday, October 6, as bond yields rose amid rising global crude oil prices. According to Reuters news agency, the price hike re-established concerns over imported inflation and a decline in Asian peers – both of which weighed on investor sentiment.

The partially convertible rupee touched 74.6450 – its lowest level since July 20. It closed on Tuesday, October 5th at 74.4450. Most Asian currencies were also trading weaker against the dollar – raising concerns about the global economic growth outlook.

Traders are also waiting for US jobs data to indicate a tightening of Federal Reserve policy on economic recovery. To keep inflation under control, Fed policymakers forecast a hike in interest rates early next month.

Economists said Moody’s’ upward revision to stabilize India’s sovereign rating outlook from negative should mean good – especially for bonds.

However, India’s benchmark 10-year bond yield – up two basis points – was up at 6.28 per cent, tracking the firm’s US Treasury yield and rising oil prices.

US oil prices rose for the fifth day since 2014 amid concerns about energy supplies on tightness in natural gas, coal and coal markets.

What Analysts Say:

Mr Amit Pabri, MD, CR Forex:

“The momentum for the pair is likely to continue as the US dollar index is holding very strongly at the level of 94. In addition, an additional run above the high of $ 83 in crude oil prices since 2014 -Up will keep pressure on the oil importing country.

On the domestic front, equities are experiencing a bargain hunter’s fishing buy and it is not allowing the market to post losses. The borrowing spree is expected to continue in the near term.

This may prevent losses in the rupee, though the further direction will be decided by the RBI’s policy decision- starting today. The policy decision will be announced on October 8, where they can reduce their bond-buying (G-SAP) programme, increase the reverse repo rate or announce higher VRR operations to eliminate excess liquidity. Huh.”

Kshitij Purohit, Lead International & Commodities, CapitalVia Global Research Limited:

As the Evergrande debt crisis and rising global oil prices boosted demand for the safe-haven asset, the USD/INR pair opened the day at 74.64, up 33 paise/USD from the previous day’s close. The currency pair is predicted to test the next resistance level at 74.80, RBI intervention at that level is likely to keep the currency volatility in the local market under control.

On the domestic front, USD/INR October opened on a positive note and we saw prices moving marginally in a bearish trend. The large gap created by today’s opening has been filled and prices tested support at yesterday’s high, after which we saw a gradual correction.

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