Rupee spot was held in a narrow range of 82.61-82.85 during the last week but is down by 82 paisa on a month to date basis. Despite dollar’s sharp gains against the basket of major currencies, losses in the Indian rupee was limited as RBI intervened the markets by selling dollar ensuring the domestic currency do not breach psychological 83 mark. Moreover, weakness in domestic equities along with foreign outflows limited rupee’s fall. In the week ended February 17, 2023, the forex reserves dropped by $ 5.68 billion to an 11-week low of $ 561.267 billion. This was the third consecutive week when the reserves dropped. FII’s who were the net buyers during the week ended 17th Feb, turned out to be the net seller last week. For the month till February 24, FIIs sold shares worth a net Rs 4,508 crore while in the month of January FIIs sold shares worth a net of Rs 41,464.73 Crore.
Focus is turned toward the GDP growth numbers of Q3 of FY2022-23 which is due on Tuesday. India’s GDP growth likely slowed to 4.6% year on year in 4Q22 from 6.3% in the previous quarter. The Reserve Bank of India’s hawkish stance at its February meeting was based in part on signs of growth resilience in 4Q22. A surprising jump in January inflation back above the RBI’s target ceiling contributes to the case for another rate hike.
Dollar edged higher to 105.21, up by 1.30%, against previous week’s close of 103.86
The US Dollar rallied for fourth straight week and closed at its best level since early January driven by surging U.S. Treasury yields following hotter-than-expected Personal Consumption Expenditure numbers. The rally that started with the strong labor market numbers, remained consistent with hawkish speeches from experts and the January PCE numbers, the Fed’s favorite inflation gauge, further boosted expectations for the Fed’s terminal rate, lifting it to 5.39% The figure implies about three additional 25 basis point hikes.
US policymakers will have no choice but to maintain an aggressive stance for longer, delaying a monetary policy pivot. The incoming February data including manufacturing PMI and services PMI report would also be a key.
What lies ahead?
A depreciation bias in the Indian Rupee may continue this week ahead of the GDP numbers. India’s GDP growth likely slowed to 4.6% year on year in 4Q22 from 6.3% in the previous quarter. January data available since the RBI’s meeting have shown emerging weakness in growth momentum. With the recovery on shaky ground, any further tightening in India would amplify downside risks to growth. Crude oil’s fall seems to be limited on expected supply cuts in March from Russia. Any sharp upside in crude would be a major headwind for Rupee.
Dollar may continue to benefit from hawkish tones from Fed. Focus this week will be on the incoming February data including manufacturing PMI and services PMI report along with Friday’s Jobs report. Any economic strength in macro statistics will be positive for the U.S.. dollar, while weakness should slow its advance.