Rupee steady vs dollar in thin trade; rise in US yields, crude dampen sentiment

NEW DELHI: The rupee opened steady against the US dollar on Monday amid low trade volumes as traders stayed on the sidelines ahead of the Federal Reserve’s next week. A rise in global crude oil prices and hardening US bond yields weakened sentiment for the Indian currency, dealers said.

The partially convertible rupee opened at 74.1650 per US dollar as against 74.1500 at previous close. So far in the day, the domestic currency moved in a band of 74.1300-74.2010/$1.

The Federal Open Market Committee’s next two-day policy statement is scheduled to begin on January 25.

The US central bank has signalled multiple rate hikes in 2022 as it seeks to rein in surging inflation in the country. Yields on 10-year US Treasury bonds rose past the psychologically significant 1.80 per cent mark as investors braced for tighter monetary policy.

Higher US interest rates typically lead to outflows of overseas investment from riskier emerging markets such as India.

Coupled with the rise in oil prices, domestic currency traders felt that the rupee could see some correction over the near term, especially as the Indian unit has displayed extraordinary resilience against the US dollar since the second fortnight of December.

The rupee has gained more than 2.3 per cent against the dollar since December 20, primarily due to market interventions by the Reserve Bank of India.

Oil prices rose, with Brent crude futures at their highest in more than three years, as investors bet supply would remain tight amid restrained output by major producers and on the view that global demand wouldn’t be disrupted majorly by the Omicron coronavirus variant.

Brent crude futures gained 42 cents, or 0.5 per cent, to $86.48 a barrel by 0022 GMT. US West Texas Intermediate crude was up 62 cents, or 0.7 per cent, at $84.44 a barrel.

“It being a US holiday demand could be lower due to absence of Cash demand. US yields have risen to 1.80% while oil is near to $86 per barrel. Both of these are negative for rupee,” Anil Kumar Bhansali, Head of Treasury, Finrex Treasury Advisers said.

“Equities are seeing some small profit booking. FIIs are still sellers only as we wait for teh Budget and later the polls for five states. A lot of pressure on the Fed to raise rates in March. Exporters to wait for hedging at least beyond 74.50 levels. While importers to keep hedging near to 74.00 levels.”