Rupee to be guided by Fed and geopolitics

Rupee to be guided by Fed and geopolitics

By Gaurang Somaiya

Rupee continued to trade in a narrow range for the last six weeks and volatility has been confined to the range of 82.80 and 83.50 despite uncertainty on the global front, broader strength in the dollar against its major crosses and heightened geopolitical tensions and FII funds outflow on the domestic front. On the domestic front, in the last couple of months fund outflow from the FIIs has been to the tune of over $3 billion from the Equity segment. Volatility for rupee is curtailed by active RBI intervention and latest data showed reserves currently stand at $583.5 billion down from $2.3billion for the week ended 20th October. On the domestic front, inflation has been in control, but widening trade deficit is disturbing the overall market sentiment. Dollar strengthened on back of safe haven buying following better-than-expected economic number and higher US treasuries. 10-year yields in the US rose to the highest level in 16-years on expectation that more rate hikes could follow suit.

Dollar strengthened against its major crosses following safe haven buying as geopolitical uncertainty continued to keep market participants on the edge. In the recent past, most economic numbers released from the US have beaten estimates and the economy seems to be resilient to monetary tightening measures taken by the Fed. Last week, advance GDP, durable goods and core PCE index number all of it came in above estimates. Data showed the economy at its fastest pace in nearly two years in the third quarter as higher wages from a tight labor market helped to power consumer spending. GDP increased at a 4.9% (YoY) last quarter, the fastest since the fourth quarter of 2021. On the other hand, durable goods order also jumped in September and registered a growth of 4.7% as compared to estimates of 2% increase. This week, focus will be on the FOMC policy statement and expectation is that the central bank could keep rats on hold. Fed Chairman is expected to maintain a hawkish stance and that could keep the dollar supported atlowerlevels.

(Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services. Views expressed are the author’s own. Please consult your financial advisor before investing.)