MUMBAI, Oct 3 (Reuters) -
The Indian rupee is likely to strengthen slightly in the week, taking cues from the dollar index and crude prices, while bond yields may track U.S. peers and react to the Reserve Bank of India's policy decision in the first week of fiscal second-half.
The rupee ended at 83.0400 to the U.S. dollar last week and traded in a range between 83.0325 and 83.2450, with likely intervention from the central bank keeping it off record lows.
The U.S. dollar index and crude oil prices took a breather on Friday after a relentless surge over the last few days.
Brent crude oil futures eased to $95 per barrel, while the dollar index also slipped. The 10-year U.S. Treasury yield hit 4.6880%, its highest level since October 2007 but was off highs.
The rupee is likely to gain if the dip in the U.S. dollar index and crude prices persist, said Apurva Swarup, vice-president at Shinhan Bank India. The local currency is likely to trade in an 82.70-83.20 range during the week, he added.
"We remain mindful that the dollar index outlook has been driven as much by the weakness in Europe as the Fed's optimism for a soft landing," DBS analysts stated in a note.
In the immediate term, markets are bracing for a possible U.S. government shutdown in the first fortnight of October, the note added.
The RBI's monetary policy meeting's outcome and key U.S. labour market data, including unemployment numbers and initial jobless claims will be points of focus.
Meanwhile, the benchmark 7.18% 2033 bond yield ended at 7.2162% on Friday, up six basis points for the week, after easing in preceding two weeks.
Market participants expect the yield to be in the 7.15-7.26% range until the monetary policy decision this week.
"We expect RBI's monetary policy committee to remain on hold in October, but the commentary should be on the hawkish side as oil prices have moved higher since the last meeting," said A Prasanna, head of research at ICICI Securities Primary Dealership.
"Although core inflation is heading in the right direction, there are risks from food and fuel prices."
The policy decision is due on Friday. Market participants expect rates to be held for the fourth consecutive time, with focus on inflation and liquidity trajectory.
The yield also posted its first quarterly rise in the last five driven by constantly rising U.S. peers and oil prices.
The 10-year U.S. yield hit 16-year highs, while the benchmark Brent crude hit nearly a year high last week, putting upward pressure on yields, that came close to break key technical levels on the upside.
Bonds and rupee did not react after FTSE Russell did not include India in a government bond index, a week after JPMorgan included the country in its GBI-EM index suite starting June 2024. KEY EVENTS:
** U.S. Sept S&P Global Mfg PMI - Oct. 2, Monday (7:15 p.m. IST)
** U.S. Sept ISM manufacturing PMI - Oct. 2, Monday (7:30 p.m. IST)
** India Sept S&P Global Mfg PMI - Oct. 3, Tuesday (10:30 a.m. IST)
** U.S. Sept S&P Global services and composite final PMI - Oct. 4, Wednesday (7:15 p.m. IST)
** U.S. Sept ISM non-manufacturing PMI - Oct. 4, Wednesday (7:30 p.m. IST)
** U.S. Sept factory orders - Oct. 4, Wednesday (7:30 p.m. IST)
** India Sept S&P Global Services PMI - Oct. 5, Thursday (10:30 a.m. IST)
** U.S. August international trade data - Oct. 5, Thursday (6:00 p.m. IST)
** U.S. initial weekly jobless claims week to Sept. 25 - Oct. 5, Thursday (6:00 p.m. IST)
** India policy rate decision - Oct 6, Friday (10:00 a.m. IST) (rates expected to remain unchanged)
** U.S. Aug non-farm payrolls and unemployment rate - Oct. 6, Friday (6:00 p.m. IST) (Reporting by Dharamraj Dhutia and Jaspreet Kalra;Editing by Nivedita Bhattacharjee)
