A weaker dollar boosted the rupee for the second consecutive month. The local unit rose by 0.32 or 27paisa to close at 81.83, the strongest close after January 30. Among Asian currencies, the rupee was the second best-performing currency thanks to the high-frequency data and the RBI pause. The coming month will be a busy month as three major central banks will decide the path on when to pause. India’s foreign exchange reserves fell below the previous week 9 month’s high, $584248 Mn for the week ended April 21. India’s currency assets, the biggest component of the forex reserves, fell by USD 2.14 bn to USD 514.48 bn. Gold reserve during the latest week fell by USD 24 Mn to USD 46.15 bn. For the month of April, the Domestic equity market witnessed FIIs’ major inflows for two consecutive months. By the end of last week, FIIs turned out to be net buyers for a full week bringing back foreign investors to build confidence in the Indian economy. FIIs were overall net buyers and they bought shares worth Rs 5711 crores in April month. Rupee was calm in the previous week, as are global markets, despite the First Republic takeover. Markets still hope that the FOMC will swoop in to buffer any risk event and cut rates sharply. The US small bank sector supports around half of their economy and a simmering problem there could mean a deep recession, if not handled correctly. USDINR remains in a range reflecting the calm in global markets, but the Rupee does not have enough appreciation momentum yet since there are enough landmine situations any one of which can blow up in the coming months. With the FOMC decision coming up tomorrow and then the US jobs data slated for Friday, INR will be event-driven during this week. Dark clouds are gathering on markets and unless FOMC manages to be nimble enough to act at the appropriate time, a storm is due in the coming months, and INR remains vulnerable.
Dollar Index lost to 101.66, down by 0.16% last week against the previous week’s close of 101.82
Dollar Index retreated modestly this past week, slipping about 0.10% to 101.68, dented by positive sentiment, as equity markets rebounded, with tech stocks commanding strength and leading the charge higher on Wall Street following solid earnings from heavy hitters such as Microsoft and Meta Platforms. The dollar seems to be stable, and markets have already priced in the 25 basis point hike in interest rates, However as the FOMC meeting gets underway from today volatility in the Dollar index can be seen. While the macro data is pointing to slowing growth and sticky inflation, the collapse of the First Republic Bank and its takeover by JPMorgan underscores the difficulty for the Fed in its rate policy. The Fed has two issues to contend with in its policy. While the labor market remains strong, it is apparent that the US growth is starting to stag, even as inflation remains firm. The ISM data showed contraction and rising inflationary pressures. The core PCE showed sticky inflation. On the other hand, the collapse of First Republic Bank reveals that the US small bank crisis is far from over. The borrowings from the emergency Fed window remain high, but the continuing deposit outflows will hurt bank margins more and more.
The rupee spot (CMP: 81.90) is at a make-or-break point near 81.70. Appreciation bias could be seen towards 81.50
The ongoing week will bring high-impact events that could reinforce the U.S. dollar’s bearish bias. There are 2 things worth keeping an eye on: Wednesday’s Fed monetary policy decision and Friday’s nonfarm payrolls report. Focusing on the U.S. central bank, policymakers are expected to raise interest rates by 25 basis points to 5.00%-5.25% as part of their ongoing efforts to return inflation to the 2.0% target. Considering that this decision is already discounted, the market’s attention will fall primarily on guidance for the forecast horizon. For this week, India’s Rupee outlook could be slightly on the appreciation side over the week on the back of global crucial data outcomes leading to a slowing down economy which could benefit the Indian rupee. FIIs turned net buyers, Falling crude oil prices, Domestic equity market sustained above 18000 levels on the back of strong earnings supported by the banking sector along with the highest-ever GST collections. The above indicators could support USDINR to stand strong and appreciate towards 81.50 levels. However, volatility cannot be ruled out as a global event this week.
