Asian currencies were mostly weaker, with the offshore Chinese yuan down 0.1%. The dollar index was little changed at 104.3, while U.S. bond yields declined.
The rupee is expected to see “gradual depreciation,” and is likely to track movement in the yuan, said Dilip Parmar, a foreign exchange research analyst at HDFC Securities.
Meanwhile, dollar-rupee forward premiums rose, with the 1-year implied yield up 4 basis points at 1.73%, its highest since March 12, lifted by the decline in near-maturity US bond yields.
The 1-year Treasury yield was last quoted down 3 basis points (bps) at 4.81%, its lowest since February.
Heightened odds of the Federal Reserve starting to cut rates in September have pressured near-maturity U.S. yields, even as rising prospects of a second presidential term for Donald Trump support yields at the longer end of the curve.
Interest rate futures have fully priced in a rate cut in September, and are indicating a total of 69 basis points of cuts in 2024.
But a lack of arbitrage opportunities and narrow price action has driven down banks’ activity in the dollar-rupee forwards, with volumes dropping by 36% in the April-June period compared to the previous quarter.
Investors now await the release of U.S retail sales data later in the day alongside remarks from a Fed official for cues on the interest rate trajectory.
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