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Rupee seen lower as U.S. yields rise, yuan slips below key 7/USD level

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The Indian rupee is expected to open weaker against the dollar on Friday, as U.S. Treasury yields continued to rise on bets of aggressive interest rate hikes by the Federal Reserve and a slump in the Chinese yuan.

The rupee is tipped at around 79.85 to a dollar in initial trades, compared with 79.6975 in the previous session. The rupee has witnessed a turnaround after it reached 79.02550 in intraday trades on Tuesday.

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The rupee “is back to the lower-end of its trading range” after a respite earlier this week, a trader at a Mumbai-based bank said.

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“Markets will be back to RBI (Reserve Bank of India) watching, as rupee comes under renewed pressure on account of the risk sentiment and the yuan.”

The selloff continued in the U.S. bond market post the August inflation data release. The two-year Treasury yield rose to 3.88%, a new 15-year high. The yield is now up almost 30 basis points since the inflation data as traders price in a larger immediate rate hikes and a higher terminal rate.

U.S. retail sales unexpectedly rebounded, while new unemployment claims declined to three-months lows, data showed on Thursday, further fueling the bond selloff.

The onshore Chinese yuan dropped below the key 7 per dollar level for the first time since July 2020, weighed by the weak China economic outlook and the Fed outlook.

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Data from China on Friday showed industrial output beat forecasts but property investment continued to decline considerably.

Risk appetite floundered amid rising borrowing costs in the United States. Asian equity gauges were down as much as 1.3% and U.S. equity futures extended losses. The S&P 500 Index overnight closed at its lowest level in almost two months.

The moves on the dollar index were relatively muted considering the risk sentiment and rise in U.S. yields. The dollar gauge was rangebound around 109.70.

KEY INDICATORS: ** One-month non-deliverable rupee forward at 80.06; onshore one-month forward premium at 19.5 paise ** USD/INR NSE Sept futures closed on Thursday at 79.8450 ** USD/INR forward premium for end current month at 6.5 paise ** Dollar index at 109.71 ** Brent crude futures up 0.3% at $91.1 per barrel ** Ten-year U.S. note yield at 3.45%, India 10-yr bond yield at 7.24% ** SGX Nifty nearest-month futures down 0.6% at 17,778 ** As per NSDL data, foreign investors sold a net $172.7mln worth of Indian shares on Sep. 14

** NSDL data shows foreign investors bought a net $30.4mln worth of Indian bonds on Sep. 14 (Reporting by Nimesh Vora; Editing by Rashmi Aich)



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