Rupee Falls on US Data Boosting Fed’s Rate Hike Next Year

India’s rupee dropped the most in a week after data showing a surge in U.S. hiring strengthened the case for the Federal Reserve to increase interest rates, boosting the dollar.

A gauge of the greenback headed for its highest close in more than five years following a Dec. 5 report that showed U.S. payrolls increased by 321,000 last month, the most in almost three years and higher than the most optimistic forecast in a Bloomberg survey. Federal Reserve policy makers have said they plan to raise rates in 2015, even as the outlook for global inflation remains low with the price of crude oil down more than 35 percent this year. India’s 10-year bonds advanced today.

“A strong dollar impacted the Asian currencies, including the Indian rupee,” said Vikas Babu, a foreign-exchange trader in Mumbai at state-run Andhra Bank. Higher inflows helped recover the losses, he said.

The rupee retreated 0.1 percent to close at 61.8350 per dollar in Mumbai, according to prices from local banks compiled by Bloomberg. That’s the biggest drop since Nov. 28. The yield on the sovereign notes due July 2024 fell two basis points, or 0.02 percentage point, to 7.92 percent, according to prices from the central bank’s trading system. That’s the lowest level for benchmark 10-year debt since July 2013.

Foreing funds have invested $42 billion into the nation’s stocks and bonds, exchange data shows.

Three-month offshore non-deliverable forwards on the rupee gained 0.1 percent to 62.72 per dollar, according to data compiled by Bloomberg. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.

via Bloomberg

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza