MUMBAI, March 11 (Reuters) - The Indian rupee may look to build on its recent gains on the back of a weaker dollar and will keep an eye on domestic and U.S. inflation data for cues, while government bond yields will track movements in Treasury yields.
The local unit ended at 82.7850 on Thursday after rising to its highest level in six months during the session. The rupee logged a gain of 0.1% last week, denoting its fourth consecutive week-on-week rise.
Indian financial markets were shut on Friday for a local holiday.
The dollar index ended the week lower by 1.1%, its sharpest weekly fall since December after Fed Chair Powell stated that the Fed was “not too far,” from gaining confidence to cut interest rates.
A mixed jobs report for February also pressured the dollar and was seen keeping the possibility of June rate cut alive.
Nonfarm payrolls rose by 275,000 jobs last month, higher than the 200,000 anticipated by economists polled by Reuters. But the unemployment rate rose to 3.9% in February after remaining at 3.7% for three months.
“With more cooling in the jobs market looking probable we continue to see a strong chance of a June cut,” ING Bank stated in a note. Data for January was also revised down to show 229,000 jobs created instead of 353,000 as previously reported.
“Technically, the bias remains negative for the USD/INR pair, with a weekly range likely between 82.60 to 82.90,” Arnob Biswas, head of foreign exchange research at SMC Global Securities said.
Consumer inflation data due in the U.S. due on Tuesday will further shape Fed rate cut expectations.
Traders will also keep an eye on the maturity of Reserve Bank of India’s $5 billion USD/INR sell-buy swap on Monday which will impact the overnight USD/INR swap rate and forward premiums.
Meanwhile, the 10-year Indian government bond yield ended at 7.0312% on Thursday, 3 basis points lower for the week. It is expected to move in the 7.00%-7.08% range this week, traders said.
Indian bond yields eased last week, tracking a decline in U.S. yields, while the 10-year yield fell further after the U.S. jobs data.
Meanwhile, foreign investors continue to pour in money into Indian government bonds, and although inclusion in another index will not change things materially, it has boosted sentiment.
Bloomberg Index Services will include domestic government bonds eligible for investment via the country's fully accessible route (FAR), in its Emerging Market Local Currency Index (EMLC) from Jan. 31, 2025.
However, market participants expect inflows of less than $5 billion from the inclusion, resulting in little movement in yields last week.
"This, in itself, is not material but sets a strong setting for possible addition of Indian bonds in Bloomberg Aggregate index, which has a significant AUM tracking it and can lead to inflows in excess of $20 billion over the medium term," said Anurag Mittal, head of fixed income at UTI Asset Management Company.
Investor focus will also shift to India's February retail inflation print, due on Tuesday, especially as the central bank has reiterated that its intention to meet its 4% medium-term inflation target on a sustainable basis.
India consumer price inflation is forecast to have edged down to a four-month low of 5.02% in February on moderating food price increases, according to a Reuters poll of economists. Inflation has, however, remained above the 4% mid-point of the central bank's tolerance band since September 2019. KEY EVENTS: ** India Feb CPI inflation - Mar. 12, Tuesday (Reuters poll 5.02% on-year) ** India Jan industrial output - Mar. 12, Tuesday (5:30 p.m. IST) (Reuters poll 4.1% on-year) ** U.S. Feb CPI - Mar. 12, Tuesday (Reuters poll 0.3% on-month) ** India Jan WPI inflation - Mar. 14, Thursday (12:00 p.m. IST) (Reuters poll 0.25% on-year) ** U.S. initial weekly jobless claims week to Mar. 4 - Mar. 14, Thursday (6:00 p.m. IST) ** U.S. Feb PPI machine manufacturing - Mar. 14, Thursday (6:00 p.m. IST) ** U.S. Feb retail sales - Mar. 14, Thursday (6:00 p.m. IST) ** U.S. Feb import prices - Mar. 15, Friday (6:00 p.m. IST) ** U.S. Feb industrial production - Mar. 15, Friday (6:45 p.m. IST) ** U.S. Feb U Mich sentiment - Mar. 15, Friday (7:30 p.m. IST) (Reporting by Dharamraj Dhutia and Jaspreet Kalra; Editing by Sonia Cheema)
