However, expectations of tighter US monetary policy continued to weigh on Asian currencies, including the rupee. US Treasury yields rose sharply on Monday (June 22), with the two-year yield touching a 16-month high as investors priced in a higher probability of a Fed rate hike by September.
Fed funds futures are currently indicating nearly a 75% chance of a rate increase later this year. Deutsche Bank also revised its outlook, forecasting two additional 25-basis-point hikes following the Federal Reserve’s hawkish commentary last week.
Currency traders noted that while exporter hedging activity has increased in recent sessions, underlying demand for the dollar remains firm. Bankers added that Monday’s (June 22’s) weakness in the rupee did not appear to be linked to any major market flow and had surprised many traders given the broader trend.Analysts said the key risk for the rupee is gradually shifting from crude oil prices to elevated US bond yields and the Federal Reserve’s policy path.
Jateen Trivedi, VP Research Analyst – Commodity and Currency at LKP Securities, said the rupee remained under pressure despite softer crude oil prices, as strength in the US dollar index continued to weigh on emerging market currencies. He added that persistent dollar demand and a rebound in commodity prices limited gains for the domestic currency.
Trivedi expects the rupee to trade in the 94.25–95.25 range in the near term, with global dollar movements, crude prices and foreign fund flows likely to remain key triggers for the currency market
-With Reuters inputs
