Indian Rupee Declines to 3-Week Low on Concern Inflows Will Slow

India’s rupee fell to the lowest level in more than three weeks on speculation an improving U.S. economy will prompt the Federal Reserve to rein in stimulus measures that have spurred fund flows into emerging markets. Bonds dropped before a local debt sale.

Claims for jobless benefits in the world’s largest economy unexpectedly dropped to the lowest level in more than five years, an official report showed yesterday. The Dollar Index, which tracks the greenback against six counterparts, rose the most since April 17 yesterday as the yen dropped past 100 per dollar for the first time in more than four years. The rupee’s losses will be limited as data due today will probably show a rebound in factory output, according to Credit Agricole CIB.

“Currencies should come under clear downward pressure due to the strength of the dollar in global markets,” analysts at Credit Agricole, including Hong Kong-based Dariusz Kowalczyk, wrote in a report today. “Indian industrial output is likely to rebound more than anticipated, providing support for the rupee.”

The rupee declined 0.5 percent to 54.5375 per dollar as of 9:39 a.m. in Mumbai, according to data compiled by Bloomberg. It touched 54.605 earlier, the weakest since April 16. The currency has dropped 1.1 percent this week. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, rose 36 basis points, or 0.36 percentage point, today to 8.27 percent.

Global investors have poured $17.6 billion into Indian stocks and bonds this year, exchange data show. Bank of Japan Governor Haruhiko Kuroda pledged in April to double monthly bond purchases and scoop up longer-term debt to reach a 2 percent annual inflation goal, debasing the yen.

Factory Output

India’s industrial production rose 2.4 percent in March from a year earlier, after a 0.6 percent gain the previous month, according to the median of 26 estimates in a Bloomberg survey before data due around 11 a.m. in New Delhi.

The yield on the 8.15 percent bonds due June 2022 rose one basis point to 7.62 percent in Mumbai, according to the central bank’s trading system. The rate was 7.61 yesterday, the lowest on a benchmark 10-year note since July 2010.

The finance ministry will auction 150 billion rupees ($2.8 billion) of bonds maturing in 2020, 2022, 2032 and 2042 today.

Three-month onshore rupee forwards traded at 55.40 per dollar, compared with 55.22 yesterday, according to data compiled by Bloomberg. Offshore non-deliverable contracts were at 55.20 versus 54.90. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.

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