The Indian rupee faced a drop in value on Monday, erasing some of the gains made after JPMorgan included Indian bonds in its index. This decline was attributed to several factors, including increased dollar demand from importers and the ongoing pressure of high U.S. yields.
As of 11:00 a.m. IST, the USD/INR exchange rate stood at 83.12, compared to 82.93 in the previous session. While the dollar index remained relatively stable in Asia, it hovered near six-month highs.
One major contributor to the rupee’s downward trend was the month-end dollar demand from importers, particularly oil companies. A foreign exchange trader at a state-run bank noted this pressure but suggested that the Reserve Bank of India (RBI) was likely to intervene to prevent the rupee from weakening below 83.20.
Despite initially strengthening to 82.8225 following the news of Indian bonds being included in JPMorgan’s emerging market debt index, the rupee’s rally was short-lived due to concerns about rising U.S. yields. In Asia, the 10-year U.S. Treasury yield reached 4.46%, while the 2-year yield was not far behind at 5.10%, nearing multi-year highs.
Dilip Parmar, a foreign exchange research analyst at HDFC Securities, expressed a bearish outlook for the rupee, stating that as long as it held above 82.80, the bias would lean towards depreciation. He also anticipated that the rupee would likely remain below the 83 mark over the next few days.
Furthermore, Indian portfolio flows weakened in September, as foreign investors turned net sellers of Indian equities, ending a six-month buying streak, as per NSDL data. This shift in investor sentiment added to the rupee’s challenges.
Looking ahead, investors will closely monitor U.S. second-quarter GDP data and core personal consumption expenditure (PCE) inflation numbers later in the week for insights into potential actions by the U.S. Federal Reserve regarding monetary policy. These economic indicators could further influence the direction of the Indian rupee in the coming days.