By Gaurang Somaiya
Rupee consolidated in a narrow range and volatility remained low ahead of the important RBI and Fed meeting minutes that was released in February. On the domestic front, the RBI meeting minutes showed that the governor reiterated about the current setting of policy is moving in right direction with growth holding firm and inflation nearing the banks target.
Market participants were cautious ahead of the important India GDP number that showed the Indian economy grew by 8.4% during the October-December quarter of FY24, better than the estimation of 7.3%. On the other hand, manufacturing sector soared 11.6% and the farm sector grew 3.8%.
Relatively strong growth may keep the RBI on guard as it tries to bring inflation down to its 4% target. Reaction on the rupee remained quite muted even after robust growth number suggesting that volatility was curtailed following active RBI intervention.
Latest RBI data showed FX reserves continued to grow and last week added another $2.98billion and reserves stand at $ 619.07 billion. We expect USDINR(Spot) to trade sideways and quote in the range of 82.80-83.20.
Dollar Index traded flat on back of mixed set of economic numbers from the US. At the start of the week, dollar was trading stronger even after data showed U.S. economic growth in the fourth quarter was lowered slightly, but its composition was much stronger than initially thought.
GDP increased 3.2% YoY and revised down marginally with consumer spending increasing at 3%, thereby adding two percentage point to GDP growth. In the latter half, dollar eroded gains after data showed Manufacturing PMI dropped to 47.8 in February from 49.1 in the previous month.
This week, volatility could remain elevated following release of few important economic number from the US. Market participants will keep their focus on the US labor market data to gauge a further view on the dollar index. Also focus will be on the Fed Chairman’s testimony, wherein any hawkish statement is likely to keep the dollar supported at lower levels.
(Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services. Views expressed are the author’s own. Please consult your financial advisor before investing.)