Rupee set to decline on strength of US Treasury yields, soft asian markets

Rupee decline expected: The Rupee is anticipated to decline at the opening of trading on Tuesday, driven by a rise in US Treasury yields and weak performance in Asian markets. Forecasts from non-deliverable forwards suggest that the Rupee will start trading at 82.92 against the US Dollar, slightly lower than the previous session's close of 82.8950. Over the past two weeks, the Rupee has been trading within a narrow range of 82.84 to 83.02.

Traders note that the Reserve Bank of India (RBI) has been actively defending the lower end of the USD/INR range, likely intervening in the market to support the Rupee. However, there hasn't been much demand from market participants to push the currency higher. Additionally, interest from oil companies and other importers has been observed in purchasing Dollars.

US Treasury yields rise

The increase in US Treasury yields on Monday added pressure on the Rupee. The two-year US Treasury yield rose by 7 basis points, while the 10-year yield increased by 4 basis points. Despite the absence of significant US economic data releases on Monday, analysts attribute the rise in yields to unspecified factors.

While the US Dollar index dipped slightly on Monday and US equities experienced a modest retreat, Asian currencies, including the Rupee, were trading lower on Tuesday. Investors are closely monitoring developments this week, particularly the testimony of Federal Reserve Chair Jerome Powell to lawmakers and the release of the US jobs report on Friday. These events are crucial for determining the direction of US interest rates.

No urgent rate cuts

Atlanta Fed President Raphael Bostic stated on Monday that there is currently no urgent need for interest rate cuts, given the strength of the US economy and job market. This sentiment has been echoed by other policymakers as well.

Key indicators to watch include one-month non-deliverable Rupee forwards at 83.01, the Dollar index at 103.86, and Brent crude futures at $82.80. According to NSDL data, foreign investors bought $262 million worth of Indian shares on March 1, while selling $26.1 million of Indian bonds on the same day.

(With Reuters Inputs)