Rupee set to remain rangebound in near-term

Rupee set to remain rangebound in near-term

By Gaurang Somaiya

Rupee fell to fresh record lows last week following a system outage and other trigger triggered volatility for the rupee. Broadly, for the week, it traded in a narrow range despite swings witnessed in the dollar against its major crosses. Fed Chairman’s statement was scheduled during the week and he continued to remain hawkish. Dollar gained after the Fed Chairman’s comments and US treasuries gained after falling to levels of 4.40 – 4.50%. In his commentary, the Fed Chairman did appreciate the slowing pace of inflation but is unsure whether the central bank has done enough to keep the momentum going. He also added that inflation is above what the Fed targets while describing policy as ‘significantly restrictive.’

This week, on the domestic front, inflation number will be released and expectation is that it could come in lower as compared to the previous month. Volatility is expected to remain low as most market participants could remain on the side-lines following Diwali and New-year holidays. Fed Chairman in his comments was hawkish and better-than-expected economic numbers could continue to keep the dollar supported at lower levels. We expect the USDINR (Spot) to trade sideways and quote in range of 82.80 and 83.50

Dollar index gained marginally after falling in the last couple of sessions primarily after hawkish comments from the Fed Chairman. Weakness in the dollar has been on back of weaker-than-expected economic data from the US and as expectation builds up of slower and gradual rate hike by the Fed. Trigger for the dollar was following weak jobs data that showed the US economy added 150,000 jobs in October as compared to 297,000 job additions in the previous month. On the other hand, services PMI number also fell to 51.8 as compared to 53.6 in the previous month.

During the weekend, Moody’s lowered its credit rating for the US to negative from stable. The agency expects the country’s fiscal deficit will remain large and significantly weaken debt affordability. This week, from the US, inflation, retail sales and Philly fed manufacturing index will be important to watch. We expect the Dollar Index to trade with a positive bias and quote in the range of 104.50 and 108.20.

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