Indian Rupee likely to consolidate within 79

Indian Rupee likely to consolidate within 79.30-80.30 range in near-term; US Fed interest rate decision eyed

By Dilip Parmar

The Indian rupee marked the first weekly gain in twelve amid a recovery in domestic equities backed by foreign fund inflows, weaker crude oil prices and the dollar index. Spot USDINR settled with a loss of 2 paise to 79.85, after touching a record low of 80.06. The dollar index slid for the first week in four. The fall in the dollar came after the ECB’s hike of interest rates more than anticipated, as well as the growing conviction that the Fed is going to push the US into recession. The economic data also weighed on the dollar, with traders marking down Federal Reserve rate hike bets from 75 basis points to 50 for September’s FOMC meeting. The FOMC is expected to raise rates by 75 bps again this week. No doubt investors will come away from the Powell press conference somehow convinced that that’s dovish.

Back to home, spot USDINR has consistently resisted around 80 odd levels following the dollar supply from RBI. If we look at the forex reverses data, it plunged at one of the fastest speeds in the world, down $70 billion or 11% since September last year to 572.7 billion. Though the RBI manages to curb the volatility and protect against sharp depreciation of the rupee, the direction remained down following weaker EM and DM currencies. Also, the RBI Governor Das says reserves are adequate and no need to panic.

In the near term, spot USDINR is likely to consolidate within the range of 80.30 to 79.30. Given the overbought situation in and last seven months’ rally, we are expecting profit booking in the pair. We believe, the spot USDINR could see 79.70 to 79.30 level before heading towards 80.50 odd level.

(Dilip Parmar, Research Analyst, HDFC Securities, Views expressed are the author’s own.)