Rupee turns bullish following foreign fund inflows

Rupee turns bullish following foreign fund inflows

By Dilip Parmar

The Indian rupee marked the second weekly gain and best performer following the Chinese yuan amid foreign fund inflows, improvement in risk appetite after foreign investors invested in Adani group’s stock and appointment of the committee by the supreme court to inquire about the group. Spot rupee gained almost a percentage to settle just above 82.

Last week, the S&P 500 gained 1.9%, the first weekly gain in a month. A gauge of the dollar’s strength posted its first weekly loss since January as optimism about China’s growth and an eventual peak in US policy rates sent US shares sharply higher. Fed Chair Powell’s semi-annual testimony this Tuesday means the appetite for selling the dollar will remain relatively contained after eroding February gains.

The investors can earn about 5% in US Treasuries, the highest since 2007, at the start of March, which may be a strong headwind for most risk assets. The yields on 10-year US Treasuries ended at 3.95%, pulling back from 4.09%, hit on Thursday for the first time since November.

Traders in US interest-rate options are piling into cheap hedges that would pay off big if the Federal Reserve returns to 50 basis-point rate hikes at its upcoming policy meeting later this month. Over the past month, traders have gone from betting the Fed’s benchmark rate would peak around 5% in July to betting it will peak at about 5.5% in September.

What to Watch:

US Jobs data, Powell’s testimony and Central Bank decisions in Japan, Australia and Canada are key this week.

The quality of recent data makes it challenging to get a clean read on where the US economy is and where it’s headed. Key labour indicators in the week ahead, nonfarm payrolls (Fri.), ADP (Wed.), and JOLTS (Wed.), will shed light on whether January’s across-the-board strength was a fluke or the start of a trend. A hawkish testimony by Powell along with a strong job market report (if there’s an upside surprise) could increase demand for safe-haven assets, lifting up the dollar and US treasury yields

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