MUMBAI, Jan 29 (Reuters) - The Indian rupee is likely to track the moves in its Asian peers early this week, with investors closely monitoring the outcome of the U.S. Federal Reserve meeting, while the move in bond yields will also factor in the domestic budget announcement. The currency ended barely changed at 83.1150 against the U.S. dollar on Thursday but notched a marginal weekly loss. Indian financial markets were shut on Friday.
Prices in the U.S. rose modestly in December with the personal consumption expenditures (PCE) price index rising 0.2% month-on-month, in line with consensus expectations, according to data released on Friday.
The inflation data followed a stronger than expected U.S. GDP print for the October-December quarter. The dollar index was little changed on Friday but posted its fourth straight weekly gain.
Strength in U.S. economic data and paring of bets on aggressive rate cuts by the Federal Reserve have aided both the dollar and U.S. bond yields this month.
In the near-term, the rupee is unlikely to see "much of a change in the overall trend," and is expected to be rangebound between 82.90 and 83.25, Anil Kumar Bhansali, head of treasury at Finrex Treasury Advisors said.
While investors widely expect the Fed to keep rates unchanged at its meeting this week, Chair Powell’s statement may offer cues on the potential timing of future cuts.
Even before the inflation numbers other upbeat U.S. economic data had led to investors paring bets on aggressive Fed rate cuts, which boost both the dollar and U.S. bond yields.
Meanwhile, India's 10-year benchmark bond yield closed at 7.1760% on Friday, having barely budged in the past two weeks as traders await the federal budget announcement, with a particular focus on the deficit and borrowing figures for the next financial year.
Market participants expect the benchmark bond yield to trade in a narrow range of 7.15%-7.20% until the budget announcement.
India's government may keep its gross market borrowing for 2024/25 close to this fiscal year's level as it looks to rein in borrowings, two government sources told Reuters.
The government may target gross borrowing between 15 trillion rupees to 15.50 trillion rupees.
A Reuters poll had pegged fiscal deficit as a percentage of GDP to 5.30% in 2024/25 from 5.90% this fiscal, and gross borrowing of 15.60 trillion rupees, up from 15.43 trillion rupees.
The government's net borrowing is likely to remain largely unchanged, said Parul Mittal Sinha, head of financial markets, India, at Standard Chartered Bank.
ICICI Securities Primary Dealership noted a key focus area would be the government sticking to a 5.9% fiscal deficit for this year as nominal GDP may turn out lower than what was pegged in budget estimates.
Another focus area it identified was whether the government will step up its pace of fiscal consolidation in order to achieve its self-imposed 4.5% fiscal deficit target by fiscal 2026.
"On paper, gross borrowing would amount to 15.3 trillion rupees, just below current year's figure of 15.4 trillion rupees," the primary dealership added.
Traders will also continue to eye activity from foreign investors as well as foreign banks that have been heavily buying bonds since the start of the New Year.
KEY EVENTS:
** U.S. Jan consumer confidence - Jan. 30, Tuesday (8:30 p.m. IST)
** India Dec fiscal deficit data - Jan. 31, Wednesday (3:30 p.m. IST)
** India Dec infrastructure output data - Jan. 31, Wednesday
** U.S. Fed Federal Reserve policy decision - Feb. 1, Thursday (12:30 a.m. IST) (Reuters poll: No change expected)
** HSBC India Jan manufacturing PMI - Feb. 1, Thursday (10:30 a.m. IST)
** India FY25 Union Budget announcement - Feb. 1, Thursday
** Bank of England monetary policy decision - Feb. 1, Thursday (5:30 p.m. IST)(Reuters poll: No change expected)
** U.S. initial weekly jobless claims week to Jan. 22 - Feb. 1, Thursday (7:00 p.m. IST)
** U.S. Jan S&P Global manufacturing PMI - Feb. 1, Thursday (8:15 p.m. IST)
** U.S. Jan ISM manufacturing PMI - Feb. 1, Thursday (8:30 p.m. IST)
** U.S. Jan non-farm payrolls and unemployment rate - Feb. 2, Friday (7:00 p.m. IST)
** U.S. Dec factory orders - Feb. 2, Friday (8:30 p.m. IST)
** U.S. Jan U Mich sentiment final - Feb. 2, Friday (8:30 p.m. IST) ($1 = 83.0700 Indian rupees)
