By Raj Deepak Singh

Rupee depreciated again this week amid the recent surge in US treasury bond yields and higher crude oil prices. The US dollar index witnessed a sharp rebound despite lower-than-expected July CPI print. The dollar index initially fell post the CPI print, but firm US treasury yields and weaker Japanese Yen on firm oil prices helped it to recoup all its losses. The US consumer CPI rose 0.2% in July, whereas it has advanced 3.2% in the 12 months through July from the previous record of 3.00%.

Earlier rupee appreciated after the RBI policy, in which the RBI kept its policy rates unchanged at 6.5% and sounded hawkish in response to the rising inflationary risk. The introduction of 10% incremental CRR for banks to suck the liquidity in the system has helped the rupee to limit its losses against the dollar. 

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In the coming week, we expect the dollar index to face the hurdle near 103.00 and weaken towards 101.50 amid rising expectation of a pause in interest rate hike by the Fed in its September meeting. The CME FedWatch tool suggests a more than 88% probability of pause in the interest rates in September. However, stronger treasury yields and expectation of rates to stay higher for longer periods could limit the downside in the dollar. Meanwhile, focus will shift towards the outcome of FOMC meeting minutes and key US retail sales data which may provide some more insight into the Federal Reserve’s interest rates path.

USDINR is likely to face the hurdle near the Rs 83 level again in this week and slip back to Rs 82.50 amid expectation of correction in the dollar. The USDINR pair has been hovering inside the band of Rs 83-81.60 since the last five months. We expect the 83.00 would act as a major supply zone for the dollar and limit the downside in the rupee. 

For Monday Rupee future maturing on August 29th may open near the Rs 82.80 levels 

(Raj Deepak Singh, Analyst – Derivatives, Commodities, and Forex, ICICI direct. Views expressed are the author’s own. Please consult your financial advisor before investing.)