The Rupee could appreciate this week amid USD weakness and market optimism; USDINR to trade within this range
By Raj Deepak Singh
The rupiah appreciated over the week amid dollar weakness and rising risk appetite in global markets. Additionally, the Rupee strengthened on the back of lower crude oil prices. The dollar index slid amid rising risk appetite in global markets and falling US Treasury yields. Yields fell after data showed the US economy contracted again in the second quarter, fueling speculation that the Federal Reserve would not hike rates aggressively as expected. Even the US Fed raised interest rates by 75 basis points on Wednesday, as was widely expected and Powell’s comments boosted hopes for a slower hiking trail. He said another unusually large increase may be appropriate at the next meeting, which is in September, and the decision will depend on the data.
As the monetary policy stance tightens further, it would become appropriate to slow the pace of increases while the bank assesses how the cumulative policy adjustments affect the economy and inflation. We expect the Rupee to appreciate this week to 78.80 amid USD weakness and optimism in global markets. Market sentiment improved after Fed Chairman Powell hinted that the pace of rate hikes would eventually slow. Dollar falters as the US Fed moved to raise interest rates by 75 basis points, which was widely expected, but comments from US Fed Chairman Powell boosted hopes for a slower hiking trail.
Additionally, data showed the US economy contracted again in the second quarter, fueling speculation that the Federal Reserve will not aggressively raise rates as expected. Additionally, investors will remain vigilant ahead of the Reserve Bank of India’s (RBI) monetary policy meeting, where the central bank is expected to adopt aggressive measures to control soaring inflation. Meanwhile, sharp appreciation could be avoided as traders will remain cautious ahead of the US jobs data and rebound in crude oil prices.
Crude oil prices rose slightly due to supply issues. Moreover, all eyes were on the next meeting between OPEC and its allies. The group is expected to plan to keep oil production unchanged for September. USDINR (August) was trading in a narrow range of 79.80-80.40 for a few days. It has broken the support level of 79.80 and is trading below. As long as it remains below this level, it could slide further to 78.80 this week.
(Raj Deepak Singh is an Analyst – F&O, Currencies and Commodities at ICICIdirect. Opinions expressed are those of the author. Please consult your financial advisor before investing)