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The Rupee could be range bound today, with one eye on RBI! (Friday, July 12, 2019)

The rupee is expected to open little changed against the dollar after core U.S. consumer inflation topped estimates, possibly impacting the upcoming Federal Reserve decision on interest rates. The rupee will likely trade around 68.44-68.48 to the dollar at opening compared with its previous close of 68.44.

The 10-year U.S. yield climbed to its highest in a month yesterday after core consumer prices in the world’s largest economy rose by 2.1% last month, quicker than the 2% medium-term Fed target. On a month-on-month basis, core prices were up 0.3%, compared with the 0.2% pace expected by economists. Headline inflation in June was at 1.6% year-on-year, in-line with expectations.

 Asian currencies were trading mostly lower on Friday, pulling back after yesterday’s gains. The Singapore dollar declined after advance estimates showed that the city-state’s economy unexpectedly contracted on a quarter-on-quarter basis. China’s trade data is due later in the day. Regional equities were mostly higher after the S&P 500 Index climbed to record highs.

GOI bonds are likely to trade lower in early session, tracking a jump in U.S. Treasury yields and as traders await local debt supply. However, any major fall may be capped as traders remain optimistic ahead of India’s retail inflation data for June, due after market hours today. The yield on the benchmark 7.26% bond maturing in 2029 is likely to trade in a 6.48%-6.53% range till the auction result today. The note ended at 105.38 rupees, highest since issuance on Jan. 11, yesterday. The benchmark yield ended at 6.49%, lowest since Sep. 1, 2017. The benchmark bond yield has fallen in four out of the last five sessions as the government announced that it will raise debt from foreign market and as hopes of a rate cut in August gained momentum after the nation’s fiscal deficit target was lowered to 3.3%. The benchmark yield is down by 26 basis points since Jul. 4.

 India will conduct a government bond switch auction worth up to 220 billion rupees on Jul. 15, the central bank said. This will be the fourth bond switch auction of this financial year that started Apr. 1.