Indian rupee sees biggest single-day gain in nearly a year

Ioneer

29/07/2022 07:59

(Updates to add close, milestones)
    By Swati Bhat
    MUMBAI, July 29 (Reuters) - The Indian rupee posted its
biggest single-day gain in nearly a year on Friday, aided by a
sharp reversal in the dollar, while bond yields touched their
lowest in 2-1/2 months tracking falls in their U.S.
counterparts.
    U.S. Treasury yields fell overnight after data showed the
economy contracted again in the second quarter, suggesting that
the Fed may not need to be so aggressive with rate hikes to cool
inflation.  US/ 
    The partially convertible rupee  INR=D3  ended trading at
79.25 against the dollar, 0.6% stronger than Thursday's close of
79.7550 and its best single-day performance since Aug. 27 last
year.
    It touched a session high of 79.17, its strongest since July
7.
    "The recent correction lower in commodity prices is
providing some respite to the INR, albeit likely only
temporarily," Kunal Kundu, India economist at Societe Generale
wrote in a note published Thursday.
    "Growing market conviction that a U.S. recession is on the
way and consequent safe-haven demand for the dollar are key
near-term risks for rupee. The RBI's FX interventions should
continue to limit rupee volatility," he added.
    India's central bank has zero tolerance for volatile
movements in the rupee and will continue to engage with the
foreign exchange market to ensure the rupee finds its
appropriate level, its chief Shaktikanta Das said last week.
 urn:newsml:reuters.com:*:nL1N2Z30B9
    The dollar languished near a six-week low against the yen
amid a sharp retreat in Treasury yields. Almost all Asian
currencies rallied against the greenback.  USD/   EMRG/FRX 
    The benchmark 10-year bond yield  IN065432G=CC  ended
trading at 7.3196%, after falling to 7.2527% earlier, its lowest
since May 12. It had ended at 7.3316% on Thursday.
    India's stock markets  .NSEI  and  .BSESN  ended up 1.35%
and 1.25%, respectively.  .BO 
    Foreign fund flows will be a crucial factor determining the
rupee's fortunes in the coming months. Foreign investors have
been net sellers of Indian stocks worth more than $30 billion so
far in 2022.
    Traders will now shift their focus to the Reserve Bank of
India's monetary policy review next week.
    "With the Fed having stuck to a 75 bps hike and concerns of
a global recession still looming, the RBI may announce a modest
25-35 bps increase in the repo rate next week," a senior trader
at a private bank said.
    "We will see the 10-year move in a 7.20% to 7.35% range
until (then)," he added.
    Barclays said they expect the RBI's monetary policy
committee to vote unanimously for a 35 bps rate hike next week.
    "While inflation is likely to remain elevated in the near
term, we think the MPC may acknowledge that price pressures have
peaked, and note the favourable tailwinds by reducing its
inflation forecasts, albeit marginally," they added.
    India's retail inflation remained painfully above the 7%
mark and beyond the central bank's tolerance band for the sixth
month in a row in June, but has shown an easing bias over recent
months.  urn:newsml:reuters.com:*:nL1N2YT0T3

 (Editing by Kim Coghill and Uttaresh.V)
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