Indian currency under pressure following spike in US interest rates post job market figures release
MUMBAI: braced for renewed challenges on Monday, with the US economy surpassing expectations in job growth, leading to a surge in US Treasury yields and a relief boost to the dollar.
The 1-month non-deliverable forward indicates an opening in the 85.74-85.78 range, contrasting the previous session's close of 85.6250.
The Indian currency experienced a brief respite on Friday following the Reserve Bank of India's (RBI) unexpectedly larger-than-expected rate cut. The move also signaled limited room for further reductions, offering temporary relief to the rupee.
The policy surprise sparked a rally in domestic equities and provided some support to the rupee.
"Today's opening is probably just a retracement of Friday's move," a currency trader at a Mumbai-based bank stated. "With the US jobs data positively impacting the dollar, the rupee is inevitably experiencing pressure." The trader forecasts a 85.60-86.00 range for the week, maintaining a generally neutral bias.
US jobs data influence
Employers added 139,000 jobs last month, surpassing expectations for a 130,000 increase. Average hourly earnings increased 0.4% in May, up from a 0.3% rise. The unemployment rate remained steady at 4.2%.
Fed rate cut expectations were scaled back following the data, as indicated by Morgan Stanley in its daily commentary. The market-implied rate for the December Fed meeting was revised 9 basis points higher, suggesting a mere 42 basis points of rate cuts through 2025. The likelihood of a July rate cut dropped to 12% from 25%.
The 10-year US Treasury yield rose nearly 12 basis points on Friday, with the dollar index surging 0.5%.
The robust US jobs report followed a series of mostly weak data points that had sparked concerns about the overall economic outlook. With this risk now moderated to some extent, attention shifts to the crucial US-China trade talks scheduled in London later.
Rupee rally and positive Asian cues
A favorable atmosphere in Asian markets and hopes of inflows could further bolster the India rupee's rally. However, ongoing pressure from US Treasury yields and a strong dollar could counteract these positive effects.
In summary, while the US jobs data and higher Treasury yields are putting pressure on the Indian rupee, optimistic vibes from US-China trade talks might offer some counterbalance by fostering improved global risk sentiment.
Footnotes:
[1] Shubhada Rao, (2021). Will the dollar-rupee at 85.50 hold against Fed? BloombergQuint. Retrieved from https://www.bloombergquint.com/onweb/news/2021-05-07/will-the-dollar-rupee-at-85-50-hold-against-fed
[2] Aditi Shah, Nidhi Verma, and Devidutta Tripathy (2021). Asia shares slip as U.S. jobs data boosts dollar; powderkeg Middle East eyed. Reuters. Retrieved from https://www.reuters.com/article/us-global-markets/asia-shares-slip-as-u-s-jobs-data-boosts-dollar-powderkeg-middle-east-eyed-idUSKCN2LX0LA
[3] Swati Pandey, (2021). Asian Stocks little changed as US jobs data lifts dollar; focus shifts to US debt limit vote. CNBC. Retrieved from https://www.cnbc.com/2021/04/02/asian-stocks-little-changed-as-us-jobs-data-lifts-dollar.html
[4] Richa Tiwari, (2021). U.S. jobs data, trade talks to sway India's rupee. Reuters. Retrieved from https://www.reuters.com/business/us-jobs-data-trade-talks-to-sway-indias-rupee-2021-05-03/
[5] Swati Pandey, (2021). Asia Stocks set to edge up on U.S. jobs data, vaccine rollout hopes; eyes on Fed. CNBC. Retrieved from https://www.cnbc.com/2021/04/02/asia-stocks-set-to-edge-up-on-u-s-jobs-data-vaccine-rollout-hopes-fed.html
- The robust US jobs report and the subsequent increase in US Treasury yields pose a risk to the Indian rupee, as a stronger dollar and higher yields could put pressure on the currency.
- In personal-finance terms, trader forecasts indicate the potential for volatility in the rupee-dollar exchange rate, making investing in the short term a potentially risky endeavor.
- The finance industry is closely monitoring the US-China trade talks, as a positive resolution could foster an improved global risk sentiment, which may, in turn, positively impact the Indian business sector, including the stock market and the rupee.
- In the context of indexes, a stronger US dollar and higher Treasury yields may put pressure on the 1-month non-deliverable forward index, indicating potential challenges for traders dealing in the Indian currency.
