By Gaurang Somaiya
Rupee traded in a narrow range for the whole week as market participants remained cautious ahead of the Fed Chairman’s comments at the Jackson Hole Symposium. In the last couple of sessions, volatility remained elevated after some sources suggested that the RBI has asked banks to stop taking fresh arbitrage positions in the NDF market. Suspected dollar selling was to the tune of $1billion also triggered a move for the rupee. On the other hand, the dollar gained against its major crosses after preliminary manufacturing PMI numbers released from the US, Euro Zone and the UK came in below estimates. On the domestic front, no major economic data was released but it was more of global factors that triggered volatility for the rupee. Weakness for the rupee was curbed by active intervention by the RBI and fall in the reserves justifies the reasoning. Latest data released by the RBI showed reserves fell by $7.28 billion, biggest weekly fall in the last six months, to $594.90billion.
Next week, on the global front, it is going to be a data heavy week and not only the rupee but also major crosses are expected to witness volatility. Importantly, it will be the employment and preliminary GDP number fom the US will be in focus. Rate hike expectation from the Fed is again on the rise after the Fed Chairman’s statement at the Jackson Hole Symposium. Hawkish statements kept the dollar supported at lower levels. We expect the USDINR (spot) to trade sideways with a positive bias and quote in the range of 82.30 and 83.20.
Global Currencies
Dollar continued to gain momentum against the major crosses for the sixth consecutive week following better-than-expected economic numbers and on rising expectation that the Fed could raise rates further. The Fed Chairman’s statements at the Jackson Hole Symposium mentioned that there may be a need to raise rates further to ensure inflation is contained. He also warned households of coming pain from further policy tightening. The dollar gained momentum as the Fed Chairman ended the speech on a similar tone of last year.i.e. to fight until done. Next week, investors will be keeping an eye on the private and non-farm payrolls data, apart from that preliminary GDP number will be important to watch. We expect the number to beat estimates and extend gains for the dollar.
Pound fell to the lowest level in 10-weeks following strength in the dollar and after dismal preliminary manufacturing and services PMI number from the UK. Preliminary manufacturing PMI fell to 42.5 in August compared to 45.3 in the previous month. On the other hand, preliminary services came in at 48.7 in August as compared to 51.5 in the previous month. Weakness in extending also as investors are pricing in that the bank of England’s interest rate might peak after soft economic activity in the UK. Next week, from the UK, final manufacturing PMI data will be the only important data to watch. Broadly, we expect the momentum for the GBPUSD to remain negative.
(Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services. Views expressed are the author’s own. Please consult your financial advisor before investing.)