MUMBAI: The Indian rupee is likely to hover around 81 per dollar during the week, while government bond yields could fall as caution sets in after Friday's rally on the back of softer-than-expected U.S. inflation data and China easing some COVID curbs.
The rupee ended at 80.7950 on Friday, marking its biggest single-day gain since December 2018, as lower-than-expected U.S. inflation data for October prompted a broad rally in risk assets.
Investors raised bets that the Federal Reserve would tone down its aggressive stance on interest rates, sending the dollar index to a near-three-month low of 107.30. However, analysts warned the greenback may not decline substantially from here.
The rupee's move on Friday was "too much" and the currency should give back some of its gains, said an FX trader at a private bank.
The U.S. inflation data was relieving but it doesn't change anything, they said. Inflation is still high and the Fed will keep raising rates, so this rally should likely be curtailed.
The 80.30-per-dollar level is expected to provide strong support for USD/INR, said traders, with the pair likely moving between 80 and 81.50 this week.
On the debt side, Indian government bond yields are likely to resume their decline as local retail inflation is also expected to ease for October, which may release pressure on the central bank to tighten rates aggressively.
The benchmark 10-year bond yield is expected to trade in a 7.22%-7.34% range, with the bias depending on the inflation reading.
The yield ended at 7.3069% on Friday, down 16 basis points for the week in its biggest such drop in nine months.
The pain for emerging market assets was not yet over, traders and analysts warned, as a global economic slowdown would again be dollar positive.
"A heavy return to other EM currencies appears premature," ING analysts wrote in a note.
"The dollar peak might be past us, but a dollar downtrend may not be there yet."
Nov 14, Monday: India Oct WPI Inflation (1200 IST)
Nov 14, Monday: India Oct CPI Inflation (1730 IST)
Nov 16, Wednesday: U.S. Oct Retail Sales (1900 IST) (Reporting by Anushka Trivedi in Mumbai; Editing by Savio D'Souza)