KEY EVENTS: • U.S. Q1 GDP Advance - April 27, Thursday (6:00 p.m. IST) • U.S. Q1 PCE prices advance - April 27, Thursday (6:00 p.m. IST) • U.S. March PCE price index - April 28, Friday (6:00 p.m. IST) (Reporting by Anushka Trivedi; Editing by Varun H K)
anushka.trivedi.thomsonreuters.com@reuters.net)) By Anushka Trivedi and Dharamraj Dhutia
MUMBAI, April 24 (Reuters) - The Indian rupee and
government bond yields are expected to be rangebound in the week
before a critical U.S. Federal Reserve meeting, with the latter
likely to trade with an easing bias, as markets await fresh
cues.
The rupee finished at 82.09 per dollar last Friday,
down 0.30% for the week to snap a four-week winning streak.
The currency was pressured by a resurgent dollar index and rising U.S. yields, as expectations of another Fed
rate hike were bolstered by central bank officials expressing
concerns about inflation and mixed economic data.
A 25-basis-points (bps) hike at the Fed's May 2-3 meeting
was fully priced in, but there was uncertainty about whether
another hike would be needed and when would rate cuts begin. Trading could remain choppy in the near term amid a lack of
triggers and following an apparent slowdown last week in foreign
investor inflows into Indian equities, traders said.
"The rupee could move within a broad 81.50 to 82.50 range,"
said Anil Bhansali, head of treasury at Finrex Treasury
Advisors, with the possibility it stays within a very narrow
81.90 to 82.35 band this week.
U.S. personal consumption expenditures (PCE) price index
data, the Fed's preferred inflation gauge, due on Friday, would
be important.
Meanwhile, India's benchmark bond yield ended
at 7.1856% on Friday. It fell four bps last week, as against
remaining largely unchanged in the previous week.
Traders expect the benchmark yield to move in the
7.15%-7.24% range this week.
Bond yields fell across the board on Friday after
stronger-than-expected demand at a debt auction triggered heavy
short covering.
"There was good demand at the debt auction, and post that
short covering multiplied the impact. Some incremental accretion
of small savings deposits is also leading to investment in
bonds," said VRC Reddy, treasury head of Karur Vysya Bank.
The decline in bond yields came despite the minutes of the
Reserve Bank of India's latest meeting tilting towards
hawkishness.
India's current rate tightening cycle may not be over as
more hikes could be warranted to align inflation towards the
central bank's medium-term target of 4%, according to the
minutes.
The RBI had surprised markets by holding the key lending
rate at 6.50% on April 6, going against expectations of a 25
basis point hike.
"Even as the minutes seem disconnected from the vote shift,
we think the bar to raise rates will only get higher from here
on," said Madhavi Arora, lead economist at Emkay Global.
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