Drop in US Treasury yields helps Indian rupee
The rupee ticked up to 86.2650 per U.S. dollar by 11:10 a.m. IST, slightly higher than its close at 86.2925 in the previous session.
The dollar index was steady at 97.9 in Asia trading after falling 0.6% on Monday, tracking a decline in U.S. Treasury yields that saw the 10-year yield touch a near two-week low of about 4.35%.
Short-term U.S. Treasury yields declined as well, which helped boost far-tenor dollar-rupee forward premiums.
The 1-year dollar rupee implied yield rose to an over two-week high of 2.03%, while a fall in rupee liquidity in the banking system helped lift very near-tenor dollar-rupee swap rates.
Indian assets largely sidestepped a media report that a trade deal between India and the U.S. is unlikely before August 1 with equities and the rupee clinging to slight gains while the yield on the benchmark 10-year bond was little changed.
Steep reciprocal levies on exports to the U.S. are slated to go into effect next month with India likely to face a 26% charge in the absence of a deal.
"The rupee's trajectory remains tilted toward further weakness, with both the 86.00 and 86.20 levels now breached. This opens the door for a move toward 86.50–86.80," said Amit Pabari, managing director at FX advisory firm CR Forex.
In addition to uncertainty on global trade dynamics, muted foreign portfolio flows have also been a sore point for the rupee.
Overseas investors have net sold about half a billion dollars of local stocks in July so far while year-to-date outflows stand at nearly $9.5 billion.
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