The Rupee spot depreciated marginally last week and settled at 82.05 levels against the greenback. In a volatile week, the domestic currency did strengthen in the early sessions last week, testing 81.60 levels on Monday after strong FII inflows from mega buying in Adani companies, but then erased most gains and tested 82.30 after Powel’s testimony hinted at more aggressive rate hikes. Nonetheless, a slew of economic data later in the week suggested easing inflationary pressure capping the upside in the USDINR pair.  Foreign Institutional Investors (FIIs) have so far garnered an inflow of 14,361 crores in March so far. The mega-buying from foreign investors in four of Adani’s companies led to increased inflows. Earlier during the year, FIIs have been the net sellers and sold dollar worth Rs 41,464 crore and Rs 11,090 crore in January and February respectively. In the week ended March 03, 2023, the forex reserves increased by $1.4 billion to $562.40 billion. This came after falling by a total of $15.8 billion in the previous four weeks.  India’s retail inflation data for February, due today, is likely to have breached the central bank’s target for a second straight month in February. The expectation is 6.40%, slower than 6.52% in January which might trigger another 25 bps rate hike. The risk of heat waves in India is another concern that could impact food production and prices going forward. RBI has raised the policy rate by 250 basis points since May 2022 to 6.5% and an increase up to 6.75% would take India’s repurchase rate to the highest since February 2016.

Dollar Index fell to 104.35, down by 0.16% last week  against the previous week’s close of 104.52

The dollar index touched December 2022 highs of 105.88 last week post Powel’s testimony that signaled more aggressive rate hikes.  However, the greenback erased most gains and settled lower as the slew of economic indicators, including largely eyed jobs data showed easing inflationary pressure while The U.S. economy added jobs at a brisk clip in February, but slower wage growth and a rise in the unemployment rate prompted financial markets to dial back expectations for a 50-basis point rate hike.  Average hourly earnings for all private workers rose 0.2% versus 0.3% in January and lifted the year-on-year figure to 4.6%.  The collapse of three US banks along with Silicon Valley Bank fueled speculation the Federal Reserve will opt against the kind of bigger interest-rate increases it’s been considering. This too exerted pressure on the dollar.

Rupee Spot (CMP: 82.20) might trade in the range of  81.40 – 82.50 with an appreciation bias

Indian rupee may remain volatile this week amid the uncertainty prevailing in the global markets with respect to rate hike decisions parti2.19cularly after the fallout of the few US banks. Today’s CPI data will probably show inflation above the central bank’s target for the second straight month and markets have already priced in the 25 bps hike. RBI will pay close attention to the Fed this week, but will broadly look at domestic inflation and growth to drive its policy.