Rupee set for muted open; US yields soar, 82.90 per dollar level in focus

By Nimesh Vora

MUMBAI (Reuters) - The Indian rupee is expected to open little changed to the dollar on Tuesday with a focus on surging Treasury yields and a crucial support level.

The non-deliverable forward suggests that the rupee will open at around 82.68-82.74, compared with 82.7250 in the previous session.

The rupee on Monday suffered its worst session in four months on worries that the better-than-expected U.S. jobs report may prompt the Fed to raise its terminal rate and that rates could remain higher for longer.

With Treasury yields marching up and the upward momentum on the dollar index staying intact, the rupee is likely to face a tough session, a trader at a private sector bank said. However, markets are likely to respect the 82.90-83.00 range, a level at which the Reserve Bank of India has previously intervened, the trader said.

The implications of Friday's U.S. jobs report continued to be felt in U.S. bonds and the dollar. The 2-year U.S. yield climbed 16 basis points overnight, adding to its 20 bps jump in the previous session. The dollar index reached 103.50, its highest in almost a month.

Interest rate traders have pushed up the Federal Reserve terminal rate expectations to 5.12% and have fully priced in a 25 basis points rate hike at the March meeting.. Further, the odds of another 25 bps rate hike in May have reached 75%, according to the CME FedWatch Tool.

All eyes are now on Fed Chair Jerome Powell's speech later in the day.

"Market participants gear up to a potentially hawkish speech from Fed Chair Powell later tonight," DBS Group Research said in a note. With data displaying surprising resilience, hopes of an early Fed pivot have proved premature, DBS added.

Asian currencies were mixed on the day, while shares were mostly higher and oil prices rose.

KEY INDICATORS: ** One-month non-deliverable rupee forward at 82.75-82.82; onshore one-month forward premium at 11.25 paise ** USD/INR NSE February futures settled on Monday at 82.8375 ** USD/INR Feb forward premium at 7.5 paise ** Dollar index hovering just below 103.50 ** Brent crude futures up 1% at $81.8 per barrel ** Ten-year U.S. note yield at 3.62% ** SGX Nifty nearest-month futures up 0.5% at 17,842 ** As per NSDL data, foreign investors sold a net $30.4mln worth of Indian shares on Feb. 3

** NSDL data shows foreign investors bought a net $46.5mln worth of Indian bonds on Feb. 3

 

(Reporting by Nimesh Vora; Editing by Dhanya Ann Thoppil)