Indian rupee's RBI-defense line at risk as US yields rise, Asian peers weaken

MUMBAI: The Indian rupee is likely to come under pressure at Wednesday’s open, weighed by higher U.S. Treasury yields, which have in turn weakened Asian currencies and dampened risk appetite.

The Indian rupee is expected to open in the 94.70-94.75 range, per traders, after settling at 94.66 on Tuesday. The currency has struggled over the past two sessions, pressured by weakness in its Asian peers, an uptick in daily importer hedging, and waning speculative interest.

Over the past two-and-a-half weeks, the rupee has broadly traded in a 94.10–94.90 range, with downside seen capped by likely Reserve Bank of India intervention. The central bank has been selling dollars ahead of the 95 level, traders said, making it a key threshold to watch.

The 94.80–95.00 near-term support zone is “definitely” looking vulnerable, a currency trader at a bank said. A break past that level could add pressure on the rupee, trigger stop-loss orders and prompt exporters to hold out for further depreciation, he added.

Asia struggles

Losses in Asian currencies were led by the Korean won and the Indonesian rupiah, while regional equities and U.S. equity futures dipped.

The rise in U.S. Treasury yields dampened demand for Asian currencies and weighed on risk sentiment. The 10-year U.S. yield rose 4 basis points in Asian trading to 4.4650%, adding to Tuesday’s 6 bps increase.

Markets now price in around an 80% chance of a Federal Reserve rate hike in September.

Data released on Tuesday showed U.S. job openings climbing to a two-year high in May, underscoring the resilience of the labour market and undermining demand for bonds.

The release marks the first in a string of key U.S. employment indicators this week, culminating in Thursday’s non-farm payrolls report.

Meanwhile, oil prices inched higher. U.S. envoys in Doha will not hold high-level talks with Iran, a Qatari official said, raising doubts about progress towards ending the conflict.