Indian rupee spot depreciated by 0.28 paisa and closed at 83.18 vs previous week’s close of 82.95

  • The Indian rupee chocked the seventh weekly decline in eight amid a surge in crude oil prices, foreign fund outflows and weaker Asian currencies. On Friday, the rupee declined the most in eight days after India’s trade deficit widened to a 10-month high of $24bn, up 17% over July’s $20.7bn and higher than estimates of $21bn.
  • Last week, spot USDINR gained 24 paise or 0.28% to 83.18, the strongest weekly close since inceptions and 11 paise away from its lifetime high of 83.29 made on October 20.
  • In the week gone, the foreign institutions remained net sellers in the domestic equities but they bought in the debt market. FPI sold $56mn equities and bought 165mn debt, turning out net buyers.
  •  As per the RBI weekly statistics, India’s forex kitty plummeted by $4.99bn to $593.90bn, the lowest level since June 23. The decline in the forex reserve seems to be on the back of dollar selling by them as in the same week, the rupee tumbled to 83.22, the weakest level since Oct. 20.

The Dollar Index gained to 105.32, up by 0.21% last week against the previous week’s close of 105.09

The Dollar index soared to a six-month peak and marked a ninth straight week of gains, which would mark its longest weekly run since a 12-week streak of revenues in 2014, driven by upbeat economic data and policy divergence in place within developed markets. Euro also registered the longest streak of losses since its inception on bets the ECB is done raising interest rates.
The event risk of the September FOMC meeting does not seem particularly bearish for the dollar. But assuming there are no surprises, it probably means a fall in interest rate volatility and carry dollar demand.
Meanwhile, WTI crude oil marked a third weekly gain as the market continued to tighten on the back of supply curbs from Saudi Arabia and Russia.
What to Watch: The monetary policy meeting will be the headline of the week. FOMC will keep rates steady in the 5.25% to 5.5% range at its Sept 19-20 meeting but money markets and so-called dot plots indicate one additional rate hike before year-end. The Bank of England, on the other hand, is expected to hike rates, although a pause should not be ruled out. Meanwhile, the BoJ and the PBOC are likely to stay pat this week. On the data front, key releases to watch include EU, UK and Japan CPI.
What lies ahead?

The rupee spot (CMP:  83.27) remains weak, focus on FOMC meetings

  • The rupee remains mildly pressured ahead of the FOMC meeting this week. While markets widely expect that the FOMC will deliver a pause, the focus will be on the statement and its language. Even as Indian equities managed to remain positive, the pressure on EM assets is set to only rise with the 10y.
  • Chinese markets remain vulnerable as impatience about the lack of aggressive Chinese measures keeps markets disappointed. In all, the bias is slightly towards some more Rupee depreciation in the coming weeks, unless the US yield turns around. Long-term risks remain very much relevant but are still in the background.
  • USD INR is likely to face the hurdle near 83.30 and move back towards 82.70 on an expectation of a correction in the dollar. The rising bets of pause in key policy rates by the Fed in its upcoming policy could limit the gains in the dollar. – This scenario is valid only Rupee spot not closing above 83.30 closing basis.
  • The dollar remains firm, as US 10y resumes its up move, pressuring risk assets. The dollar remains firm, as US 10y resumes its up move, pressuring risk assets.

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