Rupee to pause amid Asian Fx rally, US yield rebound

The Rupee is expected to start the day with a relatively stable performance on Tuesday, as Asian currencies take a breather from their recent rally and US Treasury yields show signs of bouncing back.

Non-deliverable forwards suggest that the Rupee may open at around 83.22-83.24 against the US dollar, a slight change from the previous session's rate of 83.2150.

Despite increasing indications that the US Federal Reserve is unlikely to raise interest rates further, the Rupee has remained within a narrow range of 83 to 83.30 for several weeks. Market observers have noticed that the Rupee seems somewhat immune to broader movements in the US dollar and other external factors.

One forex trader commented, “It's becoming increasingly clear that the Rupee is currently in a phase where it remains relatively unresponsive to broader shifts in the dollar or other influences. Frankly, I've stopped searching for the trigger that could shake things up at this point.”

The recent drop in US bond yields and the strength of Asian currencies experienced a minor setback. On Monday, the 10-year US Treasury yield and the US dollar index both saw gains, leading to a slight decline in Asian currencies. The dollar index hit a more than month-long low during the European trading session but later rebounded.

Weak US economic data, including employment figures and manufacturing and services data, coupled with what some analysts perceive as a dovish stance from the Federal Reserve, have diminished demand for the US dollar. The probability of a Fed interest rate hike at the upcoming meeting has dwindled to just 10 per cent.

In response to the disappointing economic data, investors will closely watch for comments from senior Fed officials, including Chair Jerome Powell. Additionally, officials from the Bank of England and the European Central Bank are scheduled to make statements later in the week.

"We expect to hear guidance that interest rates will need to remain at elevated levels for an extended period to effectively combat inflation. While there are signs of improvement in inflation, the battle is far from over," noted ANZ in a research note.

(With Reuters Inputs)