Rupee likely to appreciate amid weak US dollar, foreign funds inflow; USDINR to trade in this range

Rupee likely to appreciate amid weak US dollar, foreign funds inflow; USDINR to trade in this range

By Raj Deepak Singh

Rupee appreciated almost 2% last week and touched 80.78 which is its highest level in almost seven weeks amid weak US dollar and rise in risk appetite in the global markets. Further, rupee was supported by sharp drop in crude oil prices and continued FII inflows. US dollar tumbled by more than 2.60% towards 107.7 level, its lowest in almost 14 weeks’ after US consumer prices rose less than expected in October to suggest softening in underlying inflation, which may allow the Federal Reserve to get less aggressive with interest rate hikes. Furthermore, the unemployment rate in the US increased to 3.7 percent in October 2022, up from September’s 29-month low of 3.5 percent and slightly above market expectations of 3.6 percent.

The jobless rate has been in a narrow range of 3.5 percent to 3.7 percent since March, suggesting that the labor market is already very tight, which in turn is likely to contribute significantly to inflationary pressure in the world’s largest economy for some time to come. Additionally, investors remained cautious ahead of outcome of midterm election, which is expected to result in divided government. US dollar is expected to continue its downward trend towards the level of 106.00 this week amid weakness in US 10 years’ treasury yields and expectations that US Federal Reserves will be less aggressive with interest rate hikes in the coming meetings.

Additionally, US PPI is expected to remain unchanged at 0.4% this week but it is expected to be 0.30 percent by the end of this quarter, which eventually will negatively impact US dollar. Meanwhile, the market will remain cautious ahead of retail sales data, which is expected to rise from 0.0% to 0.8% this week. We expect rupee to trade with a positive bias this week amid weakness in US dollar and optimistic domestic market sentiments. Further, rupee may be supported by drop in crude oil prices. Moreover, expectations of drop in India CPI YoY data from 7.41% to 6.73% may help in further strengthening of Rupee.

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USDINR broke a key support level at 82.65 to trade in downward trend towards the level of 80.70. As long as its sustains below 81.60 level it is likely to continue its downward trend towards the level of 79.60 this week. For Monday, Rupee may appreciate amid weak US dollar and foreign funds inflow. Meanwhile, market will remain cautious ahead WPI data from India, which is likely to drop from 10.70% to 8.70%. USDINR (Nov) is likely to trade towards the level of 80.30.

(Raj Deepak Singh is an Analyst – F&O, Currency, and Commodities at ICICIdirect. The views expressed are the author’s own. Please consult your financial advisor before investing)