The rupee's recent rally to an 8-month high could be capped as the RBI is expected to step up dollar purchases whenever the currency strengthens above 60 to the dollar. Heavy foreign fund inflows had sent the rupee to as high as 59.5950 on April 2, its strongest since July 30, although the currency retreated towards the end of the week. Latest data showed foreign exchange reserves rose by $5.04 billion to $303.67 billion in the week to March 28. However, shares could start to weaken with caution setting in as India kicks off a five-week election process on Monday. The start of the week will be marked by global reaction to the U.S. jobs data due later on Friday. Sentiment for debt markets is much weaker, however, with benchmark 10-year bond posting their biggest weekly losses since the week ended on November 8. Caution remains as India has resumed weekly debt auctions at a time when the RBI is seen as reluctant to buy bonds via OMOs, which in the past had helped markets absorb the supply. Benchmark 10-year bond yield are seen trading in a 8.95-9.10 percent range after on Friday rising to as high as 9.07, its highest since December 6.
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