The Rupee spot depreciated for a third straight week and recorded its worst performance in almost two months tracking the dollar’s rebound against the basket of major currencies along with stock fallout and foreign outflows. Losses in the domestic currency were mostly seen at the start of the week on Monday after the jobs data and thereafter rupee steadied as the RBI announced another quarter-point hike in the monetary policy meeting.
The Reserve Bank of India raised the key interest rate by an expected 25bps to 6.5% but left the door open for further increases, dashing market hopes for a final borrowing costs hike in the current tightening cycle. While consumer inflation in India stayed below the central bank’s target of 2- 6% for a second month in December, the core inflation hasn’t eased to that level yet.
FIIs have been selling for most of the trading sessions so far in 2023. For the month till February 10, FIIs sold shares worth a net of Rs 5,414.21 crore while in the month of January FIIs sold shares worth a net of Rs 41,464.73 Crore. Reopening in China has prompted funds to go overweight on Chinese stocks, which are trading at cheap valuations, leading to outflows from domestic securities.
The dollar recovered to 103.63, up by 0.69%, against the previous week’s close of 102.92
The US Dollar extended the previous week’s rally that kick-started after Friday’s non-farm payroll data, spurring expectations that policymakers would have little choice but to keep interest rates elevated to combat inflation.
The greenback got a further push after a slew of economic data including ISM manufacturing and consumer sentiments pushed for the higher-for longer policy stance by FED. The overall consumer sentiment index came in at 66.4, up from 64.9 the prior month.
Moreover, revisions showed that U.S. monthly consumer prices rose in December instead of falling as previously estimated, while data for the prior two months were also revised higher. All eyes are now on the US CPI data due on Tuesday as investors grew concerned about inflation numbers that could show a number higher than markets forecast amid data showing expectations for a continued rise in prices over the next year.
Rupee spot (CMP: 82.79) might trade in the range of 81.90 – 83.30 with a depreciation bias:
Indian rupee may depreciate amid risk aversion in the global markets and a sharp rebound in crude oil prices. The market also awaits CPI data from India due today evening. The expectation is that inflation could rise by 5.9% as compared to 5.72% in the previous month. Bond yields jumped after the RBI highlighted core inflation concerns, keeping the door open for another hike
The dollar is hovering new five week high and a fresh trigger for the greenback remains the key US CPI data due tomorrow. The dollar’s strength should remain intact this week as inflation is widely expected to have fallen in January from the prior month and it is still forecast to remain at relatively high levels, which could invite more monetary tightening by the Federal Reserve.