Rupee sinks after rising for 2 weeks despite FII buying, bearishness on dollar falls; global central banks eyed

Rupee sinks after rising for 2 weeks despite FII buying, bearishness on dollar falls; global central banks eyed

By Dilip Parmar

The Indian rupee edges lower after two weeks of gain following weaker Asian currencies and dollar demand from the importers. However, the foreign fund remained the net buyer in the week gone. They bought $321.6 million in equities and $41.8 million in debts. 

Spot USDINR gained 16 paise or 0.19% to 82.4625 after consolidating in the range of 82.70 to 82.40. Technically, the pair is oscillating near the short-term moving averages with positive momentum oscillators and indicators. It has support at 82.10 and resistance at 82.75.  

The dollar declined for a second week and marked its biggest weekly loss in a month as investors dialed back expectations for a Federal Reserve interest-rate hike this week. Risk assets rallied in the week gone as haven assets declined. The S&P 500 pulled out of the longest bear market since 1948 as the Fed may pause following unemployment remaining at historically low, and price gains are slowing. 

Investor bearishness on the dollar faded for the third week in a row. Aggregate USD short positions held by Speculative Accounts dropped by nearly $3.5 billion in the latest week, the biggest one-week improvement in net non-commercial short positioning since the start of the year. Additional data showed Real Money Accounts cutting aggregate dollar shorts by around $3.5 billion in the week as well. However, Leveraged Accounts maintained a modest ($1.9bn) short position in the dollar.

What to Watch: All eyes will be on interest rate decisions from the US, Europe, China and Japan. Positioning in rates markets suggests one more hike, with the likelihood that the move comes next month rather than this Wednesday. The European Central Bank is projected to lift its benchmark rate Thursday, there’s an outside chance of China cutting its medium-term lending facility the same day and the Bank of Japan is expected to stand pat on Friday. Meanwhile, unexpected hikes last week from the Bank of Canada and the Reserve Bank of Australia have added an extra element of uncertainty.

(Dilip Parmar, Research Analyst, HDFC Securities. Views expressed are the author’s own. Please consult your financial advisor before investing.)