Rupee Spot fell 0.06% or 5 paise to 83.16 while India’s 10-year bond yield jumped 6bps to 7.24% 

The rupee has made a sturdier start to 2024 compared to its Asian peers, most of which fell on Friday and were down week-on-week, as the dollar gained amid a paring of early rate cut expectations in the United States. 

The rupee strengthened even as the dollar index rose to its highest level since mid-December and appeared on track to post its strongest weekly gain since May 2023. 

Price action over the last two days has indicated good flows, adding that dollar sales from both state-run and foreign banks helped the rupee on Friday. But the rupee’s gains are unlikely to sustain and the local unit may retrace to the 83.25-83.35 range next week, 

India’s foreign exchange reserves rose for a 7th straight week and stood at a near 22-month high of $623.20 billion as of Dec. 29.  

Dollar emerged as the strongest major currency last week, although it experienced some jittery on Friday. The robust non-farm payroll data, surprisingly, did not provide lasting momentum for Dollar’s rebound. 

US jobs report showed 216k rise in jobs as against 175k expected. Wage growth was also higher than expectations. But the previous month’s data was revised lower, tempering the positive data for this month. The jobs data came in just right for markets neither too strong nor too weak to cause recession fears.  

Fundamental Outlook 

The rupee has had a bit of an unexpected move higher and Asia managing a recovery will help keep up the momentum. Considering how range-bound the rupee has been, it’s completely acceptable to be optimistic based on how it has done in the last few days. 

We believe the pair is expected to stay within the range of 83 to 83.40 as dollar inflows and better macro data push the dollar lower while the central bank’s dollar buying limits the downside. A continuation of dollar inflows and robust domestic economic data should support further strengthening of the rupee. 

Amidst these changes, Dollar concluded broadly higher, though it faced conflicting reactions due to mixed economic data. Looking ahead, extended pullback in risk markets and stabilization in yields could potentially bolster the greenback in the near term. 

While the US labor market is cooling off in absolute terms, it remains relatively strong for markets to keep some possibility of long pause in rates open. US CPI inflation data is due on Thursday this week. The base case expectation is that the data will show subdued inflation, and keep the rate cut hopes buzzing. 

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