Rupee hits over 2-week low as US yields firm, premiums drop

By Anushka Trivedi

MUMBAI (Reuters) - The Indian rupee closed at a more-than-two-week low against the dollar on Wednesday as the greenback staged a recovery on firmer U.S. Treasury yields.

The rupee finished at 82.2250 to the U.S. dollar, its lowest level since April 3. The currency's previous close was 82.04.

Technically, 82.20 is a key level and the break indicates further losses for the rupee were possible, a forex dealer said.

A recent batch of mixed U.S. data has pushed back rate cut expectations and trading could remain choppy till the Federal Reserve monetary policy decision on May 3, the dealer added.

"One can buy USD/INR around 81.80-82.00 and sell above 82.80 to 83.00 as long as the six-month range of 81.50-83.00 is protected," said Amit Pabari, managing director at CR Forex Advisors.

The dollar index jumped 0.2% after hovering near 101.80 all day as U.S. Treasury yields remained firm. The two-year yield, which is extremely sensitive to Fed expectations, reached over a one-month peak of 4.2610%.

A 25 basis point (bps) rate hike from the Fed next month was almost certain, with the possibility of another raise in June going to up to 30%, CME FedWatch tool showed.

That possibility was under 6% last week.

One Fed official on Tuesday said that more rate hikes were needed beyond May. St. Louis Fed chief James Bullard told Reuters in an interview that he favoured 75 bps of additional tightening against the market consensus for one more 25 bps hike next month and then potential cuts later this year.

Meanwhile, USD/INR premiums continued their downtrend, with the one-year implied yield down 10 bps to 2.21%.

The yield has fallen more than 30 bps since the Reserve Bank of India earlier this month held rates steady at 6.50%.

(Reporting by Anushka Trivedi; Editing by Sohini Goswami)