(MENAFN- Live Mint) By Dharamraj Dhutia and Jaspreet Kalra
MUMBAI, Nov 18 (Reuters) - The Indian rupee will rely on the central bank's help to counter headwinds this week, as the possibility of slower federal Reserve interest rate cuts and expectations surrounding Donald Trump's policies boost the dollar and U.S. bond yields.
The rupee closed at 84.3950 on Thursday, after slipping to a record low of 84.4125 earlier in the week. Indian markets were closed on Friday for a holiday.
A sharp rise in the dollar and elevated U.S. bond yields since Trump's victory in the U.S. presidential election have weighed on Asian currencies, but frequent interventions by the Reserve Bank of India have supported the local currency.
The rupee is down 0.5% so far this month, outperforming most regional peers which have declined as much as 3%.
"We remain negative on the outlook for Asian FX through H1 2025, given the potential negative economic impact of likely US tariff hikes," MUFG Bank said in a note.
Fed Chair Jerome Powell said on Thursday that the U.S. central bank does not need to rush to lower interest rates, which drove the odds of a December rate cut to little under 60% from above 80% a day earlier, according to CME's FedWatch tool.
The rupee faces a "double challenge" from portfolio outflows and Trump trades boosting the dollar, a trader at a state-run bank said. It will be key to watch how stiffly the RBI defends 84.50 levels this week, he said.
Foreign investors have net sold local stocks worth over $2.5 billion and pulled out nearly $1 billion from a JPM index-linked Indian government bonds in November so far.
India's 10-year benchmark government bond yield closed at 6.8294% on Thursday, up 5 basis points on the week, after easing 3 bps in the previous week.
Bond yields rose as U.S. Treasury yields stayed elevated, while local retail inflation surged above the RBI's tolerance band for the first time in 14 months on higher vegetable prices.
Traders expect the yields in the 6.78%-6.85% range this week, and track moves in U.S. yields, as they keenly await domestic July-September growth data due at the end of the week.
India's economic growth data is due on Nov. 29 and would be the last major economic data before the RBI's monetary policy decision due on Dec. 6.
Meanwhile, traders will also keep an eye on foreign investors and banks' appetites, as they have been selling Indian government bonds over the last few weeks.
Foreign investors have net sold bonds worth 74 billion rupees ($876.3 million), while foreign lenders have net sold bonds worth 148 billion rupees in two weeks of November.
"While emerging market local bonds might face some pressure in the current environment post U.S. election and amid higher U.S. yields, we do not expect much pressure on India bonds due to outflow, given that foreign ownership is relatively low," said Edward Ng, senior portfolio manager for Asian fixed income, Nikko Asset Management. KEY EVENTS: ** U.S. October housing starts - Nov. 19, Tuesday (7:00 p.m. IST) ** U.S. initial weekly jobless claims week to Nov 11 - Nov. 21, Thursday (7:00 p.m. IST) ** U.S. November Philly Fed Business Index - Nov. 21, Thursday (7:00 p.m. IST) ** U.S. October existing home sales - Nov. 21, Thursday (8:30 p.m. IST) ** India November HSBC Flash manufacturing, services and composite PMI - Nov. 22, Friday (10:30 a.m. IST) ** U.S. November S&P Global Flash manufacturing, services and composite PMI - Nov. 22, Friday (8:15 p.m. IST) ** U.S. November U Mich sentiment final - Nov. 22, Friday (8:30 p.m. IST) ($1 = 84.4490 Indian rupees) (Reporting by Dharamraj Dhutia and Jaspreet Kalra; Editing by Varun H K and Rashmi Aich)
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