By Dilip Parmar
Risk is skewed toward a weaker rupee even after multiple measures from the central bank and government, as capital outflows along with weaker macro. In the week gone, the rupee depreciated 21 paise to 79.25 after marking a life low of 79.38. Technically, the rupee has been in a downtrend and a level below 79.40 could open for 80 and much more while gaining above 78.50 will negate the said view.
Based on the extreme rally so far this year, the Dollar is now up 16% year on year. This is about as extreme as it gets historically (QE in November 2008 through the end of the cycle in March 2020) speaking and it typically coincides with major financial stress in markets, a recession, or both. The Fed wants a meaningful economic slowdown in the economy to curtail inflation and the stronger dollar is a part of that strategy.
On Global FX fronts, the speculators bought dollars against every currency on our board as per the latest CFTC data. The aggregate dollar long rose by $2.1 billion, as none of the flow was huge in any individual currency. Among the more notable sales were euros (6.3k), and sterling (3.1k).
Asia’s week ahead contains a feast of data, interest-rate decisions, IIP, CPI and China’s GDP. People’s Bank of China to keep its one-year medium-term lending facility rate at 2.85% in its July operation. 2Q China’s GDP is likely to contract due to Shanghai’s lockdown, though June activity should show the economy starting to bounce. India’s CPI inflation likely inched higher in June, lifted by gains in food and core components driven by supply shocks and a lower year-earlier base.
(Dilip Parmar, Research Analyst, HDFC Securities. Views expressed are the author’s own.)