What’s going on here?
The Indian rupee slipped 0.1%, closing at 83.5050 against the US dollar, pressured by rising US bond yields following robust US labor market data.
What does this mean?
The rupee’s weakening stems from stronger-than-expected US jobs data, which boosted US bond yields and tempered expectations for Federal Reserve rate cuts in 2024. The dollar index rose 0.2% to 105.3, while the 10-year US Treasury yield climbed to 4.46%, up 14 basis points from last Friday. In response, the Reserve Bank of India likely intervened by selling dollars around the 83.50 mark to support the rupee. Other Asian currencies also fell by 0.1% to 0.7%, with the Indonesian rupiah touching a four-year low. Despite the rupee’s dip, India’s benchmark equity indices BSE Sensex and Nifty 50 hit record highs before closing slightly lower.
Why should I care?
For markets: Rupee feels the heat from strong US data.
Robust US labor market data has reshaped expectations for Federal Reserve rate cuts, boosting US bond yields and the dollar. This has added pressure on Asian currencies, including the rupee. Traders now anticipate 36 basis points of rate cuts this year, down from 50 basis points prior to the jobs data. Investors are closely monitoring equity-related flows, upcoming US consumer inflation data, and the Federal Reserve’s policy decision on Wednesday for further rupee impacts.
The bigger picture: Global currency dynamics at play.
The Federal Reserve is expected to maintain current interest rates, but attention will be on Chair Jerome Powell’s comments and any updates to rate projections. These factors, along with India’s domestic conditions, suggest the rupee will remain volatile yet range-bound between 82.90 and 83.70 in the near term, according to the managing director of FX advisory firm CR Forex. This highlights global economic interdependencies and how key economic data can impact various markets.
