Indian rupee spot appreciated by 29 paisa and closed at 81.89 vs previous week’s close of 82.18.

Rupee’s appreciation bias continued for a third straight week as the dollar index weakened amid a series of weak economic data from the US which fuelled expectations of a pause in a rate hike in the US. Despite RBI keeping its repo rate unchanged in the monetary policy meeting last week, the rupee’s appreciation bias remained intact amid narrowing India’s current account deficit, strengthening domestic equities and optimism over foreign inflows along with RBI’s strong forex kitty. FIIs made a strong comeback in March and the trend continued in early April signifying worst is almost over for the Indian equity markets. The foreign institutional investors were the net buyers with inflows of 1604.56 crores in April. With recent panic in the US and Europe along with the Fed likely aiming to slow the pace of rate hikes, Foreign inflows will continue to remain positive.  India’s foreign exchange reserves retreated from more than eight-month highs to $578.45 billion as of the week ended March 31. For FY23, the overall reserves have dropped by USD 28.86 billion as the central bank intervened to defend the rupee amid pressures caused by global developments.  RBI last week kept the rates unchanged which is seen as a good step to make the growth-inflation trade-off lean more in favor of the growth, especially in the backdrop of emerging concerns over slowing consumption and tepid private investment, with high-interest rates being cited as a crucial factor affecting demand. This week’s CPI data due on 12th April will be crucial and is likely eased in March to 5.80%, thanks to softer food price rises, dipping below the RBI’s upper tolerance limit for the first time this year.

Dollar Index fell to 101.82, down by 0.67% last week against the previous week’s close of 102.51

The U.S. dollar softened last week as a slew of labor market readings early in the week raised expectations of an end to tight monetary policy. However, the nonfarm payroll report showed hiring is not cooling as quickly as expected, and thus dollar strength as treasury yields surged around 10 basis points across both the 2- and 10-year Treasury yields. The Fed won’t stop tightening until they can see consistent weakness in the labor market or inflation significantly closer to target.

The Rupee spot (CMP: 81.91) might remain volatile and trade in a range of 82.60 – 81.65

This week is going to be an event-packed week with multiple domestic and global data releases, including the US and India’s CPI prints for March 2023 as well as the US FOMC minutes. However, broadly speaking, optimism with respect to domestic equities, improvement in India’s trade balance, and narrowing CAD, along with broad dollar weakness will exert downward pressure on the USD/INR pair or an appreciation bias for the rupee spot in the near term.

As far as the dollar is concerned, following a solid US jobs report last Friday, bond rates in the US have risen as the possibilities of a rate hike in May have increased. However, we have crucial economic announcements this week including the US PI, FOMC meeting minutes, and the retail sales data which may determine whether the US Dollar Index relief rally will sustain or it breaks down below support.

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