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Rupee, bond yields to move in narrow range, with focus on Fed

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MUMBAI — The Indian rupee and government bond yields are likely to take cues from the outcome of the U.S. Federal Reserve’s monetary policy meeting on Dec. 14, one of a host of high-profile, potentially market-moving economic events in the week.

The rupee finished last week 1.2% lower at 82.27 per dollar, tumbling swiftly from trading in the 81-handle initially.

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Traders expect the currency to move in the 82.20-82.70 range for the week, until the Fed’s decision on Wednesday during U.S. hours, where a 50 basis point (bps) hike is widely anticipated.

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The rupee has struggled to gain –– despite a host of positive factors such as a domestic hawkish monetary policy, lower oil prices and a slump in the greenback –– due to corporate dollar outflows and as premiums crashed to over a decade low.

The week is packed with global central bank meetings and crucial data releases but for the rupee, “only the Fed outcome matters” and will bring clarity to its direction, said a trader at a large private sector bank.

Considering that, the rupee is still expected to be “stuck” in a range, they added.

Even as traders expect the rupee to be rangebound, Dilip Parmar, an analyst at HDFC Securities, said the positioning of the options markets suggested a move towards 81.50 next week was possible.

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Meanwhile, India’s benchmark government bond yield ended last week at 7.2982%, with the 8 bps gain its biggest weekly rise since late-September.

Yields are expected to move in a narrow range of 7.26%-7.36%, with high chances of the upper end being tested, said a fixed income trader.

India’s November retail inflation print, due on Monday, would also be key to gauge the outlook on domestic interest rates.

“The bond market has priced in inflation to be at around 6.20% to 6.40%, but there is a possibility that the print surprises on the upside,” the fixed income trader added.

After the Fed meeting, traders will also watch out for the central bank’s dot plot to see where terminal rates could go.

“Investors will have more clarity and conviction to take on long positions after that is known,” said Naveen Kumar Singh, head of trading at ICICI Securities Primary Dealership.

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KEY EVENTS:

* India Nov CPI – Dec 12, Monday (5:30 p.m. IST)

* India Nov Industrial Output – Dec 12, Monday (5:30 p.m. IST)

* India Nov trade data – Dec 12-19

* India Q3 CAD and BoP – Dec 12-23 (5:30 p.m. IST)

* U.S. Nov CPI – Dec 13 (7:00 p.m. IST)

* India Nov WPI Inflation – Dec 14 (12:00 IST)

* Federal Reserve monetary policy decision – Dec 15 (00:30 a.m. IST)

* China Nov Industrial Output – Dec 15 (07:30 a.m. IST)

* China Nov Retail Sales – Dec 15 (07:30 a.m. IST)

* Bank of England rate decision – Dec 15 (5:30 p.m. IST)

* European Central Bank rate decision – Dec 15 (6:45 p.m. IST) (Reporting by Anushka Trivedi in Mumbai; Editing by Nivedita Bhattacharjee)

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