Despite the global headwinds and turmoil in currency markets, Rupee spot managed to close flat against the dollar amid suspected RBI intervention. Rupee touched an all-time low of 82.72 levels early last week as a stronger than expected Labour data pushed the dollar higher. Meanwhile, weakness in crude oil prices also helped Rupee pare some losses. Still, reports on delay in Indian bond inclusion in JP Morgan’s emerging market bond index coupled with GDP forecast downgrade by World bank added to the upward pressure. The World Bank cut India’s economic growth forecast by a full percentage point to 6.5% in FY23, citing risks from a global slowdown and the hit to demand from rising interest rates.

Equity markets edged higher decoupling with the foreign markets, however, FIIs were net sellers  throughout the week. On the economic data front, Industrial production in India shrank by 0.8 % yoy in August, the first month of contraction since February 2021, while, domestic CPI increased to a five-month high of 7.41% in September, due to rise in food prices.  Meanwhile, India’s foreign exchange reserves unexpectedly rose to $532.87 billion for the week ending 7th October, for the first rise in 10 weeks, helped by higher gold reserves.

The greenback see sawed between highs and lows, however managed to close higher in the previous week, aided by a robust Labour market, hotter than expected CPI and hawkish comments from Fed officials.  The headline inflation rate in the US slowed for the third month to 8.2% in September 2022, however, the core CPI rose to rose to 6.6%, the highest since August 1982, in a sign inflationary pressures remain elevated and cementing expectations of a 75 bps rate hike for November meeting.  Latest FOMC meeting minutes showed that many participants emphasized the cost of taking too little action to bring down inflation likely outweighed the cost of taking too much action. US 2 year  yields are hovering near 4.5%, while 10 year above 4%, bolstering the greenback.

Rupee spot (CMP:82.40) might trade in the range of 81.8 – 82.7 levels for the week.

USDINR might trade range bound with an upward bias, amid deteriorating risk sentiments and persistent FII outflows from domestic securities. Indian GDP forecast downgrade by IMF and World bank coupled with delay in global bond inclusion might weigh down on Rupee. Rising domestic inflation might prompt further rate hikes from RBI at the cost of growth. Dollar index might stay buoyed above 113 levels for the week amid safe haven buying and prospects of aggressive rate hikes from Fed, stemming from a hotter than expected CPI for September along with robust Labour market data. Market is pricing in Fed funds terminal rate at 5% in 2023. Traders will be closely watching 150 levels in yen spot for Bank of Japan intervention. In the US, the week will be dominated by earnings reports, speeches by several Fed officials, and housing data. In China, the 20th National Congress of the Chinese Communist Party will take place and Q3 GDP growth, alongside industrial production and retail sales will be released. UK markets will also be closely watched.