The rupee is expected to trade steady this week as interventions by the central bank could sap appetite to wager against the Indian currency, while bond traders await cues from the minutes of latest policy meeting to gauge rates outlook.
Despite lingering uncertainty over the U.S.-Iran war and associated volatility in crude prices, the rupee logged a marginal loss last week to end at 95.4250 per dollar.
Post market hours on Friday, the Reserve Bank of India said it had decided to close a discounted forex swap facility for banks to hedge overseas deposits a month earlier than planned.
Data released alongside the announcement showed that the central bank's policy measures, including the facility to swap FX deposits, have drawn a total of nearly $57 billion.
Traders reckon that the rupee is likely to hover in a 95.00 to 95.50 range this week with some anticipating a rush among overseas clients to book FX deposits before the facility closes on August 31.
In the week ahead, foreign portfolio flows and hedging activity are also expected to influence the rupee while traders will keep an eye on the release of the minutes of the central bank's August policy meeting, where policy rates were left unchanged.
Most analysts either expect the RBI to either start a shallow rate hiking cycle in December or remain on hold throughout 2026.
BONDS RANGE TRADE
Government bonds are likely to remain in a narrow range, with the yield on the benchmark 10-year bond glued to the crucial 6.75% handle.
The 10-year bond yield ended at 6.7578% on Friday, just a tad lower after falling 7 basis points in the previous week.
Traders expect the benchmark yield to move in the 6.72% to 6.80% range, with major action expected after the minutes, due on Thursday.
In its policy decision earlier this month, the RBI slashed its forecast for core inflation by 40 bps to 4.3% for the current fiscal year, while moderately reducing headline inflation projection by 10 bps to 5%, with assurance that the central bank will provide sufficient liquidity.
Even as the 10-year benchmark bond yield was unable to break below its key 6.75% level, yield on longer duration 15-40 year papers witnessed a decline of 5-7 bps.
"Over the last few sessions, elevated spreads, a slightly dovish RBI monetary policy, and range-bound Brent crude prices have buoyed demand for 30-to-40-year papers. As a result, long-end spreads have compressed by nearly 10 bps," said Rahul Bhuskute, chief investment officer, Bharti AXA Life Insurance.
The benchmark Brent crude rose but stayed below the $90 per barrel mark. KEY INDICATORS: India ** Minutes of Reserve Bank of India's August monetary policy decision - August 19, Wednesday (5:00 p.m. IST)
** India August HSBC manufacturing, services, and composite Flash PMI - August 21, Friday (10:30 a.m. IST)
U.S.
** July housing starts - August 18, Tuesday (6:00 p.m. IST)
** July import prices - August 18, Tuesday (6:00 p.m. IST)
** July industrial production - August 18, Tuesday (6:00 p.m. IST)
** Initial weekly jobless claims for the week to August 15 - August 20, Thursday (6:00 p.m. IST)
** August Philly Fed Business index – August 20, Thursday (6:00 p.m. IST)
** August S&P Global manufacturing, services, and composite Flash PMI - August 21, Friday (6:30 p.m. IST)
