Indian rupee, bonds poised to rally on ceasefire with Pakistan
By Jaspreet Kalra and Khushi Malhotra
MUMBAI (Reuters) -The Indian rupee and bonds are expected to soar this week after a truce was reached and held between nuclear-armed rivals India and Pakistan following the worst clashes between them in nearly three decades.
Indian share benchmarks jumped nearly 4% on Monday to log their best day in four years after a ceasefire was announced over the weekend. The rupee and bond markets were closed for a local holiday.
Global equities also soared after the U.S. and China reached a deal to slash reciprocal tariffs. The Chinese yuan hit a six-month high while the dollar index rose 1% on easing fears of a damaging trade war between the world's two largest economies.
The rupee is set to recoup last week's losses, which were spurred by an intensification of the India-Pakistan conflict and the currency is likely to benefit from a stronger yuan as well, said Dilip Parmar, a foreign exchange research analyst at HDFC Securities.
The rupee closed at 85.37 against the U.S. dollar on Friday, falling 0.9% in that week.
Traders expect the rupee to strengthen past the 85 mark while encountering resistance around 84.60 and 84.40 levels.
Meanwhile, Indian government bond yields are expected to ease back to levels seen before the India-Pakistan conflict flared up last week.
The yield on the 10-year benchmark bond rose to a high of 6.44% before closing at 6.37% on Friday.
The ceasefire has calmed wary investors, who are likely to resume building positions after the major selloff, traders said.
The yield on the benchmark 10-year bond is expected to trade between 6.30% and 6.33% this week, a trader at a private bank said, with a focus on inflation data, the central bank's debt purchase and an auction.
"U.S.-China trade agreement is also a positive for bonds as it is good for the rupee and will further support sentiment," said Debendra Kumar Dash, senior vice president of treasury at AU Small Finance Bank.
India's consumer inflation data for April is due on Tuesday. Economists polled by Reuters expect the key price gauge to have declined to a near six-year low of 3.27%.
The Reserve Bank of India is scheduled to purchase 250 billion rupees ($2.95 billion) of bonds on Thursday and New Delhi will sell bonds worth 250 billion rupees on Friday.
U.S. consumer price inflation and retail sales data, due this week, will be eyed for cues on future Federal Reserve policy rate actions.
KEY EVENTS:
** India consumer price inflation - May 13, Tuesday (4:00 p.m. IST) ** U.S. consumer price inflation - May 13, Tuesday (6:00 p.m. IST)
** U.S. initial weekly jobless claims for week between 3 May and 9 May - May 15, Thursday (6:00 p.m. IST)
** U.S. retail sales - May 15, Thursday (6:00 p.m. IST)
** U.S. industrial production - May 15, Thursday (6:00 p.m. IST)
($1 = 84.8570 Indian rupees)
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