Indian rupee spot appreciated by 0.03 paisa and closed at 81.80 vs previous week’s close of 81.83

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Overall USDINR remains stuck to its range, as global currencies are also directionless. On one hand, there are rate cut expectations and a hope that the Fed will again move to a path towards loose monetary policy. On the other hand, fears that the bank crisis could ultimately lead to a sharp recession. In a holiday truncated week, spot USDINR fell 3 paise to 81.80. It has been hovering near a three-month low despite the U.S. Federal Reserve changing its forward guidance to indicate a conditional pause. The Indian rupee clocked a second weekly gain in a row following weaker greenback, foreign fund inflows, and better-than-expected domestic economic data. The local unit underperforms among the Asian currencies as the central bank accumulated dollars to up the forex kitty. Foreign Exchange Reserves in India increased to 588780 USD Million in the week ended April 28 from 584250 USD Million in the previous week. According to RBI’s latest data, India’s foreign currency assets, the biggest component of the forex reserves, rose by $4.99 billion to $519.48 billion. Oil prices extended losses on the day after plunging 5% in the previous session, as investors worried about the health of the U.S. economy. Meanwhile, the Indian central bank was likely buying dollars via public sector banks to ensure that the rupee remained in a narrow range.

Dollar Index lost to 101.40, down by 0.26% last week against the previous week’s close of 101.66

Risk-on, risk-off, and then risk-on. It was a roller-coaster ride for investors last week, with a range of heavy-weight events. In the end, currencies ended as the stable performer, with support from a rebound in sentiment. The US Dollar finished cautiously lower this past week, impacted by the Federal Reserve rate decision. The central bank raised rates by 25 basis points and signaled a pause in the tightening cycle. Meanwhile, at his press conference, Powell tried to stress that the committee outlook does not currently support rate cuts. Then Friday’s non-farm payroll report happened. In April, the economy added 253k jobs. Yet again, this was much higher than the 185k outcome. Meanwhile, the unemployment rate unexpectedly fell to 3.4% as average hourly earnings rose 4.4% YoY. The US yield-curve inversion will likely continue amid uncertainty about the debt-limit debate which helps the dollar index to hold the psychological level of 100. But the bearish direction can’t be changed by the news flows.

What lies ahead?

The rupee spot (CMP: 81.78) remains directionless this week amid CPI data. Important level 81.50 likely to retest.

For this week, USDINR could be stuck in a swing momentum of 81.60-82 whereas the Dollar index could hold its new important level of 100.80 on a closing basis
Markets will also be paying close attention to the next US inflation report. On Wednesday, CPI is seen holding steady at 5.0% YoY, unchanged from March. Meanwhile, the core print is seen slight decline to 5.5% from 5.6%. Further signs of stickier price pressures could add fuel to the dollar’s rally, especially if risk aversion strikes, boosting demand for haven assets.
Against the backdrop of strong payroll data, a strong CPI would be disruptive to the risk appetite and rate expectations. If CPI is broadly in line, one might expect a longer period of swing momentum in currencies and the Rupee.
However, the Indian rupee is expected to be slightly appreciative bias towards 81.50 levels over the weeks’ time boosted by the positive risk mood following the U.S. monthly jobs report.