Indian rupee hits two-and-half month low, bond yields up as oil spikes

Reuters
Mumbai Published: Oct 06, 2021, 02:21 PM(IST)

File photo. Photograph:( ANI )

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The partially convertible rupee was trading at 74.59/60 per dollar, as of 0600 GMT, after touching 74.6450, its lowest since July 20

The Indian rupee weakened to its lowest in two-and-a-half months while bond yields rose on Wednesday, as a spike in global crude oil prices re-ignited concerns over imported inflation and a drop in other Asian currencies weighed on investor sentiment.

The partially convertible rupee was trading at 74.59/60 per dollar, as of 0600 GMT, after touching 74.6450, its lowest since July 20. It had closed at 74.4450 on Tuesday.

"Overall risk tone is that of caution given several lingering risks i.e. higher energy prices, China real estate concerns, withdrawal of accommodation by central banks," Abhishek Goenka, chief executive officer at forex advisory firm IFA Global, wrote in a note.

"We are likely to see a 74.45-74.85 range in USD/INR for the day with an upside bias. Forwards continue to grind higher with 1-year forward yield now at 4.48 per cent ."

Most Asian currencies were also trading weaker against the dollar, which rose amid heightened nerves about the global economic growth outlook and as traders awaited U.S. jobs data for clues on the timing of Federal Reserve policy tightening.

Economists said Moody's upward revision of India`s sovereign rating outlook should bode well, particularly for bonds, as it reduces the chances of the country getting downgraded to junk and will aid the government`s efforts to get India included in global bond indexes.

India's benchmark 10-year bond yield, however, was up 2 basis points at 6.28 per cent , tracking higher U.S. Treasury yields and firm oil prices.

U.S. oil prices rose for a fifth day to their highest since 2014 amid global concerns about energy supply on signs of tightness in crude, natural gas and coal markets. 

India imports 80 per cent of its oil requirements and higher crude prices tend to push up domestic inflation.

Traders were also cautious ahead of the monetary policy committee meeting outcome on Friday, which is being closed watched for clues on when the Reserve Bank of India will start its exit from the pandemic-era stimulus.

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