By Raj Deepak Singh
Rupee remained volatile last week and depreciated after testing levels near 79.10 amid fresh FIIs sell-off in domestic equity markets. However, sharp decline in crude prices provided some cushion and restricted further decline. Dollar index edged higher by almost 1.00% but traded below 20-years high last week after U.S. consumer prices increased faster than expected in August, prompting bets for more aggressive Federal Reserve rate hikes. Further, US 2 years’ treasury yields touched its 15 years high level after rising from 3.561% to 3.905%, supported dollar. Additionally, retail sales in the US went up 0.3% in August from July by beating forecasts of a flat reading, also supported dollar on the higher side.
However, further upside was restricted after outsized rate hike from the European Central Bank and expectations that ECB will increase interest rates further. We expect US dollar to appreciate further this week and surpass its 20 years high level of 110.78 to touch 112.00 amid expectations of aggressive interest rate hike from the US Federal Reserve. We expect rupee to trade with a negative bias for this week amid strong US dollar. Further, Investors will keep an eye on Fed interest rate decision and major economic data from the US like existing home sales, manufacturing PMI and services PMI data. US Fed is expected to increase the interest rate by a minimum 75 basis points.
USDINR traded largely in a triangle pattern where it traded towards the support level at 79.15 and then rebounded back towards the resistance at 80.00. The pair is expected to continue trading in upward trend towards the resistance level at 80.00 and break this level to start a new upward trend towards 80.20 level in the coming week. It may consolidate near resistance level before touching 80.20 level. For Monday, Rupee may depreciate amid strong US dollar index and weakness in domestic equity markets. Further, rupee may be pressurised on expectations of aggressive interest rate hike by US Fed in coming week. USDINR (Sep) is likely to trade in the range of 79.80 to 80.00.
(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)