MUMBAI, April 3 (Reuters) - The Indian rupee and government bond yields are likely to move in a narrow range in the first week of this financial year, as the currency will keep tabs on the U.S. jobs report, while debt will react to the Reserve Bank of India's (RBI) policy decision.
The monthly jobs data due next week is expected to show the world's largest economy added 240,000 jobs in March, according to economists polled by Reuters. The unemployment rate is projected to remain at 3.6% and average wages are pegged to increase 0.3% month-on-month.
With the U.S. banking turmoil easing, the focus is back on inflation and the Federal Reserve's rate outlook. The jobs report, due on April 10, and the inflation report, scheduled for April 12, will be crucial in gauging whether the Fed will hike rates at its next meeting in May or opt for a pause. "The incoming data will determine the rupee's behaviour, but the base case remains that a reasonable range will hold," said Srinivas Puni, managing director at QuantArt Market Solutions.
Rupee and bond traders also await the RBI's monetary policy decision, due on April 6. The central bank is expected to hike the repo rate by 25 basis points (bps), according to a Reuters poll of economists, who expect it to maintain its tightening stance.
The hike would likely be followed by a prolonged pause, according to the poll.
However, a surprise pause in rates in April could lead to a sharp appreciation in the rupee as the currency has been an underperformer compared to its Asian counterparts in March, said Dilip Parmar, research analyst at HDFC Securities.
He expects the local currency to trade between 81.70 and 82.50 next week, after ending at 82.1650 on Friday. The currency declined 7.8% in the previous financial year.
Meanwhile, India's benchmark bond yield, ended at 7.3180% on Friday, posting its first monthly fall in four months. However, it jumped 48 bps for fiscal 2023.
Traders expect the benchmark yield to trade in 7.28%-7.38% during the week, and either end may be tested based on the central bank's monetary policy decision and guidance.
Bond yields on the longer end could also rise gradually after the government announced its borrowing calendar for April-September, with more than 50% of the issuance dominated by 14-year and above maturity papers.
India aims to raise 8.88 trillion rupees ($108.05 billion) via the sale of bonds in April-September, with weekly auctions starting this week.
India's foreign exchange and debt markets will be shut on Tuesday and Friday due to public holidays.
KEY EVENTS: • India March S&P Global Mfg PMI - April 3, Monday (10:30 a.m. IST) • U.S. March S&P Global Mfg PMI - April 3, Monday (7:15 p.m. IST) • U.S. Feb JOLTS Jobs Openings - April 4, Tuesday (7:30 p.m. IST) • India March S&P Global Svcs PMI - April 5, Wednesday (10:30 a.m. IST) • India monetary policy decision - April 6, Thursday (10:00 a.m. IST) • U.S. March Non-farm Payrolls - April 7, Friday (6:00 p.m. IST) • U.S. March Unemployment Rate - April 7, Friday (6:00 p.m. IST) ($1 = 82.1860 Indian rupees) (Reporting by Nimesh Vora and Dharamraj Dhutia; Editing by Sonia Cheema and Janane Venkatraman)
