By Raj Deepak Singh
Rupee continued to appreciate for 3rd consecutive week amid the soft dollar combined with a rise in risk appetite in the domestic markets. The dollar index slipped after the series of weak economic data fueled the expectation of a pause in a rate hike in May with rate cuts soon after that. USDINR after facing strong resistance near 82.50 levels made a low of 81.82 in this week. We expect the Dollar index to decline further till 100.80 level as recent sluggish economic data from the US fanned the expectations that US Federal Reserve will end its tightening campaign soon and also reignited recession fears. The money market is currently pricing more than a 55% chance of a pause in the rate hike in the May meeting. Going forward investors will remain vigilant ahead of major economic data from the US to gauge the economic health of the country. US CPI data is likely to show that inflation continued to ease in March and retail sales continued to decline for the second consecutive month. Forecast for upcoming economic data from the US seems to signal that the economy has started to slow amid high borrowing cost and the lagged effect of the Fed’s aggressive rate hike are beginning to take its toll. Moreover, the grim economic signs will strengthen the view that the Fed will reverse course on rate increases. Additionally, Investors fear that the risk of a recession could drag down consumer spending. We expect a peak in interest rates as the slowdown in the economy becomes more deceptive.
We expect Indian Rupee to appreciate further amid soft dollar coupled with rise in risk appetite in the domestic markets. Further, the Reserve Bank of India surprised the market by keeping the policy rate unchanged at 6.5% with readiness to act should the situation calls for it. It remained focused on the withdrawal of accommodation. Additionally, RBI Governor Das stressed maintaining rupee stability and announced a measure to deepen forex markets. Moreover, India’s CPI data is likely to show that inflation remained above the RBI comfort zone for 3rd consecutive month
For the past 2 weeks USDINR has failed to breach the 82.50 level. We expect the USDINR pair to appreciate towards the 81.40 level this week as long as it sustains below the 82.50 level. USDINR may face an immediate hurdle near 82.25 levels, which is also a 50-day EMA. A break below 81.40 levels may push the pair further downside till 81.00 levels. For Monday Rupee future maturing on April 26th may appreciate further till 81.80 levels as long as it sustains below 82.10 levels amid a soft dollar and optimistic domestic market sentiments.
(Raj Deepak Singh is Analyst – Commodity, Currency, and F&O at ICICIdirect. Views expressed are author’s own.)