Rupee to hover near record low amid rise in US Treasury yields

The Indian rupee may open near its all-time low on Tuesday and continue to trade with a mild depreciation bias, pressured by a rise in U.S. bond yields, with traders expecting the domestic central bank to intervene to keep a lid on sharp declines.

The one-month non-deliverable forward indicated that the rupee USDINR will open at 85.10-85.11 to the U.S. dollar, compared with 85.1175 in the previous session. The rupee had weakened to its lifetime low of 85.12 on Monday.

The domestic currency hit an all-time for the fifth consecutive trading session, inching past its previous record low of 85.10 hit on Friday.

U.S. Treasury yields rose overnight, with the 10-year yield reaching its highest level in nearly seven months, after additional supply of debt at a time when many traders are inactive.

The dollar is buoyed by U.S. economic exceptionalism, a widening interest rate gap and elevated tariffs, setting the stage for more gains possibly next year, a traders with a brokerage said.

"We maintain our view of further US dollar strength in Q1 as Trump tariff announcements coincide with an economic backdrop that reinforce a dollar-supportive divergence in monetary policy," MUFG Bank said in a note.

The Reserve Bank of India's frequent interventions have supported the rupee in the face of multiple headwinds, including a hawkish shift in the Federal Reserve's outlook for policy rates in 2025, concerns about India's slowing economic growth and tepid capital flows.

KEY INDICATORS:

** One-month non-deliverable rupee (INRNDFOR=) forward at 85.31; onshore one-month forward premium at 20 paisa

** Dollar index DXY up at 108.1

** Brent crude futures BRN1! up 0.4% at $72.9 per barrel

** Ten-year U.S. note yield at 4.58%

** As per NSDL data, foreign investors sold a net $220.1 million worth of Indian shares on Dec. 20

** NSDL data shows foreign investors bought a net $130 million worth of Indian bonds on Dec. 20