By Gaurang Somaiya
Rupee rose against the US dollar, last week, ahead of the important inflation numbers that were released from India, China and the US. On the domestic front, data showed inflation rose 5.69%, highest level in four months, in December as compared to rise of 5.55% in the previous month.
On the other hand, the core inflation eased to 3.77%. Food inflation, which accounts for nearly half of the overall consumer price basket, was at 9.53% in December, up from 8.70% in November as prices of vegetables, pulses and spices rose. Growth in India’s industrial output slumped to 2.4% in November from October’s 16-month high of 11.6%.
Gains for the rupee has been on back of fund flow that was expected to the tune of $800-900 million. The recent proposal of Indian bonds to be added to the Bloomberg EM local currency index also fuels the appreciation of the rupee.
This week, on the domestic front, trade balance number will be important to watch; expectation is that deficit could widen and that could restrict further appreciation in the rupee despite consistent fund flow in Indian equities and debt segment.
In the recent past, RBI’s forex reserves have been witnessing quite a few swings and latest data showed reserves dipped by $ 5.89 billion to $ 617.3billion as compared to a surge of over $2.7billion in the previous week.
On the economic calendar, market participants will be keeping an eye on the trade balance number that will be released on the domestic front. From other economies, a few important data are likely to trigger volatility for the crosses. For the USDINR pair, we expect it to trade sideways and quote in the range of 82.70 and 83.20.
Global Currencies
Dollar against its major crosses traded in a narrow range and volatility remained low as market participants remained cautious ahead US inflation number. Volatility remained elevated after jobs data released from the US beat estimates.
Data showed the US economy added 216k jobs in December as compared to revised number of 173k job addition in the previous month. Market participants remained cautious ahead of the US inflation number that showed price rise of 3.4% in December as compared to 3.1% rise in the previous month.
Excluding volatile food and energy prices, the core CPI also rose 3.9% in December as compared to 3.8% in the previous month. In another reading, weekly jobless claims were little changed at 202,000 as compared to estimates 210,000.
This week, from the US, retail sales, Philly Fed manufacturing index and preliminary consumer sentiment number. Better-than-expected data could keep the dollar supported at lower levels.
Yen in the last few weeks has slowly and steadily weakened against the US dollar after data showed workers’ real wages shrank for a 20th straight month in November – confounding officials wishes to see wage gains before tightening policy.
Losses for the dollar remained restricted after one the Fed members said that it’s still too soon to call for rate cuts as the central bank still has distance to go getting inflation back to 2%. This week, from Japan, no major economic data is expected to be released and the safe haven currency will be influenced by the move in dollar Index.
(Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services. Views expressed are the author’s own. Please consult your financial advisor before investing.)