Rupee’s short-term trend turns positive, dollar climbs for six weeks; traders eye India GDP, manufacturing

Rupee’s short-term trend turns positive, dollar climbs for six weeks; traders eye India GDP, manufacturing

By Dilip Parmar

The rupee bucked the four-week downtrend by gaining more than half a percentage amid the central bank’s verbal intervention and foreign fund inflows. However, RBI’s minutes sounded hawkish amid surging food inflation and uneven rainfall distribution warranting careful monitoring. In the week gone, foreign institutions bought equities worth $209 million while domestic benchmark indices registered a fifth weekly decline on regions’ risk-aversions mood.

Last week, spot USDINR fell 0.54% or 45 paise to 82.66, the weakest weekly close of a month. Technically, the short-term trend turned weak after formation of lower lows and falling below short-term moving averages. The pair has support at 82.30 and resistance at 82.90.

India’s foreign exchange reserves fell by $7.27 billion to $594.9 billion as of the week ending August 18, marking the sharpest weekly decline since February 10. Additionally, the rupee dropped below the psychological level of 83 that week.

The dollar gauge has climbed for six straight weeks, the longest stretch since May of 2022 as front-end Treasury yields rose. Federal Reserve Chair Jerome Powell said policymakers intend to keep borrowing costs high for an extended period. The euro settled for its sixth weekly decline, the longest losing streak since 2018 as European Central Bank President Christine Lagarde said the ECB will set interest rates as high as needed to tame inflation.

CFTC Position

In FX, selling of Australasian currencies was the main theme, probably as a result of the China concerns. Speculators sold 14.4k yen, 10.4k AUD, and 4.1k kiwi. On the flipside, specs bought 8.1k sterling, but there was a small (1.1k) selling of euros. The aggregate dollar short fell by about $2 billion on the week.

What to Watch

The data bucket will remain full as globally the PMI number along with regular weekly economic data release. The Chinese economic data may confirm the economy is going from bad to worse. While India looks set to report an eye-popping surge in GDP growth, powered by a manufacturing sector that’s seeing its stars align.

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