Rupee trades at three-month low against US dollar, bond yields at two-year high

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Mumbai: The Indian rupee on Tuesday hit a near three-month low against the US dollar as foreign investors continued to liquidate their positions in local equity markets. The 10-year bond yield traded near two-year high amid shrinking liquidity in the banking system and higher US yield and rising international crude oil prices.

At 1.55pm, the home currency was trading at 64.76, down 0.85% from its previous close of 64.22. The local currency opened at 64.49 and touched a high of 64.80 a dollar, a level last seen on 27 November 2017.

Yields on 10-year bond was at 7.654%, a level last seen on 11 March 2016, compared to its Friday close of 7.578%. Bond yields and prices move in opposite directions.

In the last eight sessions, foreign institutional investors (FIIs) sold nearly $1.4 billion in equity, while they have bought $1.02 billion so far this year. Since the beginning of this year, the rupee has fallen 1%.

Analysts believe that FIIs are selling in the local market from last few sessions after a disappointed budget, wider trade deficit data and the recent $1.8 billion Punjab National Bank fraud that may turn into a contagion.Weak global cues also added pressure.

“Movements in the Indian bond and currency markets are primarily taking direction from global cues, with the US dollar supported by expectations for a rate hike in the US next month, while reflation trades continue to drive US yields higher. Domestically, while much of the negativity is already in the price, the risk factors are still to dissipate, which has marked a floor for the local bond yields,” said Radhika Rao, economist at DBS Bank.

Traders will be closely watching US Federal Reserve minutes to be released on Wednesday for more clarity on the central bank’s rate hike path.

So far this year, FIIs have bought $1.85 billion in debt markets. Currency and bond markets were closed on Monday for a holiday.

India’s benchmark Sensex index rose 0.23% or 76.01 points to 33,850.67. So far this year, Sensex has fallen 0.83%.

Fall in Asian currencies also dampened the home currency. South Korean won was down 0.47%, Japanese yen 0.16%, China offshore 0.13%, Singapore dollar 0.13%, Thai baht 0.13%, Malaysian ringgit 0.1% and Indonesian rupiah 0.09%. However, Philippines peso was up 0.43% and Taiwan dollar rose 0.09%.

The dollar index, which measures the US currency’s strength against major currencies, was trading at 89.367, up 0.3% from its previous close of 89.10.livemint