Rupee weakens by 12 paise vs dollar; market jittery ahead of release of Fed mins

NEW DELHI: The rupee weakened as much as 0.2 per cent against the US dollar on Wednesday because of a rise in US crude oil prices and as investors were jittery ahead of the release of the minutes of the Federal Reserve’s October policy meet, due later in the day, dealers said.

The partially convertible Indian rupee opened at 74.5250 per US dollar as against 74.4225 at previous close. So far in the day, the local currency moved in the range of 74.5200-74.5425 per dollar.

US crude prices rose 2.3 per cent after the country ordered the release of emergency oil reserves, while benchmark US crude added 5 cents to rise to $78.55 per barrel.

Currency traders also bet against the rupee on speculation of the US Federal Reserve tightening monetary policy sooner than later in order to tackle runaway inflation in the world’s largest economy.

While the US dollar held largely steady on Wednesday, the greenback has been hovering near 16-month highs this week amid calls for a faster pace of bond tapering and anticipation of higher interest rates in the country.

The dollar index, which measures the greenback against a basket of six major rival currencies, was last at 96.51. The gauge was at 96.06 at the end of the previous week.

Higher interest rates in the US would likely diminish the appeal of emerging market currencies such as the rupee, potentially leading to outflows of overseas investment.

Dealers said that the rupee could weaken to as much as 74.65 against the greenback on Wednesday. However, the domestic currency may be supported by sales of the dollar on behalf of overseas investors looking to invest in Indian companies, dealers said.

“There is some bit of importer demand (for the dollar) because of oil, but we think that the rupee will be given help because of IPO (Initial Public Offering) demand,” a currency dealer with a state-owned bank said on condition of anonymity.

“Tarsons IPO (worth Rs 1023.47 crores) allotment happened yesterday (Tuesday), so we could see some dollar selling for that. Overall we see the rupee in a range of 74.35-74.65 per US dollar today,” the dealer said.

Government bonds weakened slightly, with yield on the 10-year benchmark 6.10 per cent 2031 paper rising one basis point higher than previous close to 6.37 per cent. Bond yields and prices move inversely.

Sovereign bonds suffered because of a recent jump in US Treasury yields, which have risen close to 10 basis points over the past couple of days. The 10-year US Treasury note was last at 1.63 per cent.

Higher US Treasury yields, which at the moment are essentially because of the anticipation of the Fed raising interest rates, may lead to outflows of foreign portfolio investment from Indian debt markets, dealers said.

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