This could have been rupee negative, but the relief on India's current account front from improving trade deficit and the expectations of a softer U.S. Federal Reserve make us think the rupee's prospects remain strong, said a trader at a private bank. Inflows are likely to improve once the Fed signals a pause more strongly and cuts begin, the trader added. "The rupee could strengthen again this week and trade in a 81.70-82.50 range, with a potential to test 81.50," said Dilip Parmar, research analyst at HDFC Securities. Meanwhile, U.S. nonfarm payrolls increased by 236,000 jobs last month, and data for February was revised higher to show 326,000 jobs added instead of the previously reported 311,000. Annual wage gains slowed but remained too high to be consistent with the U.S. central bank's 2% inflation target. The unemployment rate eased to 3.5% in March from 3.6% in February. The data has raised odds that the Federal Reserve may go ahead with one more rate hike in May to over 70%.
Investors will be awaiting March inflation figures for U.S. and India due on Wednesday, with the former being closely scrutinised to see if it would add to recent views that the Fed may be near the end of its rate hiking cycle. The minutes of the U.S. central bank's March meeting, in which it hiked rates by 25 basis points (bps) but also sounded dovish, will be released on Wednesday as well. Meanwhile, Indian government bond yields, especially at the shorter end of the curve, are expected to dip further this week, as sentiment remains bullish after the RBI's surprise. India's benchmark bond yield ended at 7.2120% on Thursday, its lowest level since Dec. 1. The yield fell 11 bps in the first week of the current financial year.
Traders expect the benchmark yield to trade in the 7.18%-7.28% range during the week.
Even though the RBI governor in his statement on Thursday said it was a pause and not a pivot, market participants do not expect the central bank to hike rates further in the current tightening cycle.
"The bar is now high for the RBI to hike rates in the upcoming policy unless macroeconomic conditions change dramatically," said Murthy Nagarajan, Head- Fixed Income, Tata Asset Management.
"The 10-year government bond yield is expected to trade in the range of 7.10%-7.30%."
India's foreign exchange, equities, and debt markets will be shut on Friday due to a public holiday.
KEY EVENTS:
* India March trade data - April 10-17
* India March CPI Inflation - April 12, Wednesday (5:30 p.m.
IST)
* India Feb industrial output - April 12, Wednesday (5:30
p.m.
IST)
* U.S. March CPI - April 12, Wednesday (6:00 p.m. IST)
* U.S. Federal Reserve minutes of March meeting - April 12,
Wednesday (11:30 p.m. IST)
* China March trade data - April 13, Thursday (8:30 a.m.
IST)
* India March WPI inflation - April 14, Friday (12:00 p.m.
IST)
* U.S. March retail sales - April 14, Friday (6:00 p.m. IST)
* U.S. March industrial output - April 14, Friday (6:45 p.m.
IST)
(Reporting by Anushka Trivedi; Editing by Janane Venkatraman)
