Indian rupee to rise on dollar slump after Treasury boosts bond buyback; oil risk persists
- The Indian rupee is expected to open in 95.62-95.66 range, per traders, having settled at 95.7525 to the dollar on Wednesday
The Indian rupee is set to open higher as the dollar weakens following the US Treasury's bond buyback plan, though high oil prices may limit its overall recovery.
- US Treasury's strategy to boost longer-dated bond buybacks.
- High oil prices limiting the Indian rupee's recovery.
- Dollar's three-month low after Treasury announcement.
MUMBAI: The Indian rupee is set to open higher on Thursday, after the dollar slid to a three-month low following the US Treasury’s move to boost buybacks of longer-dated bonds to alleviate pressure on the bond market.
The local currency’s recovery, however, is likely to remain limited beyond the initial uptick amid high oil prices and a weak near-term outlook for the Asian unit, traders said.
The Indian rupee is expected to open in 95.62-95.66 range, per traders, having settled at 95.7525 to the dollar on Wednesday.
The dollar index fell 0.88% on Wednesday, posting its biggest daily decline since mid-March, after the U.S. Treasury unveiled plans to double the size of its liquidity-support operations for longer-dated bonds.
This comes after a selloff in long-dated US Treasuries prompted the 30-year yield to rise to the highest since 2007 on concerns over inflation and investors demanding a higher term premium.
Analysts explained that the Treasury’s step was not quantitative easing.
ING Bank said that the Treasury buying longer-maturity bonds was effectively financed by issuing short-term debt.
The 30-year U.S. Treasury yield fell to 5.18%, down about 16 basis points from its recent high, while the 10-year yield dropped to 4.64%.
“One thing has become clearer from this. Any move above 5% on the 10-year (or even the material threat thereof) would likely be actively resisted or prevented by the U.S. Treasury,” ING Bank said.
Oil pressure persists
Relief for the rupee from the dollar’s slump is likely to be limited, with oil prices remaining high and Brent crude hovering near $92 a barrel.
Oil markets continue to assess the outlook for the U.S.-Iran war and the security of shipping through the Strait of Hormuz.
“I do not think the dollar’s overall decline will do much for the rupee. The opening dip (in dollar/rupee) will find buyers,” a currency trader at a bank said, while noting that the underlying tone for the Asian currency is bearish.
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