Rupee weakens to 94.25/$, 10-year bond yield rises as crude prices surge

The rupee weakened and bond yields rose on Friday, tracking an increase in crude oil prices amid renewed concerns over supply disruptions, dealers said.

The domestic currency settled at 94.25 per dollar, against the previous close of 94.04. It touched an intraday low of 94.29 after opening nearly flat at 94.05 per dollar.

The currency came under pressure as Brent crude prices rose to around $95.87 per barrel, driven by concerns over supply disruptions following fresh attacks on Saudi Aramco infrastructure and continued shipping disruptions in the Strait of Hormuz. Brent was trading at around $92.31 per barrel on Thursday.

The dollar index remained firm at around 103.19, close to its 19-month high, adding to the pressure on the domestic currency. Buying by oil importers and state-run banks, along with short covering by traders, also weighed on the rupee, dealers said.

However, foreign portfolio investor (FPI) inflows into domestic equities provided some support.

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"With crude prices remaining elevated and the dollar index holding firm, the rupee is likely to remain under pressure. We expect the currency to trade in the range of 93.75-94.75 per dollar on Monday as the market awaits US producer price index data," said a market participant.

Meanwhile, India's foreign exchange reserves rose by $2.49 billion to $719.547 billion in the week ended November 6, according to the latest data released by the Reserve Bank of India (RBI) on Friday. This marked a rebound after eight consecutive weeks of decline.

The increase was led by a $2.21 billion rise in gold reserves to $104.8 billion. Foreign currency assets, the largest component of the reserves, declined by $232 million to $591.35 billion during the week. Special drawing rights fell by $52 million to $18.61 billion, while India's reserve position with the International Monetary Fund declined by $1 million to $4.79 billion.

In the bond market, the yield on the benchmark 10-year government security rose six basis points to 7.31 per cent. The five-year government security yield increased three basis points to 6.98 per cent.

The outcome of the government's bond auction had little impact on the market, dealers said.

“The 10-year yield could move towards 7.40 per cent again, depending on the movement in crude oil prices and other external factors,” said a dealer at a primary dealership.

The benchmark 10-year bond yield has risen 84 basis points over the past year and 72 basis points so far in the current financial year. Since the Iran war, it has hardened by 65 basis points. The five-year yield has risen 81 basis points over the past year and 68 basis points so far in the current financial year.