By Raj Deepak Singh
Rupee depreciated towards to 82.90 levels but closed almost flat this week amid strong dollar and weak global market sentiments. Dollar gained back its strength and rallied back to 113 levels after US Federal Reserve raised it benchmark interest rate by another 75bps, for 4th consecutive month and signaled that it would continue to lift rates this year to combat inflation which is running hot. Meanwhile, softening of crude oil prices and significant FII inflows into local markets restricted sharp fall in Rupee. Indian Rupee is likely to depreciate back till 83.00 levels in the coming week amid strong dollar and pessimistic global market sentiments.
Dollar is gaining strength as US Fed raised its interest rate by 75bps, for 4th consecutive month taking range to 3.75%-4.0% and signaled that it would continue to lift rates to combat inflation which is running hot. Further, Fed warned that reducing the size of rate increases in the coming future does not mean that Fed is anywhere close to pivoting away from raising rates. Furthermore, he cautioned that they might raise borrowing costs next year more than they have projected. Comments from the Fed chair Powell dashed hopes that interest rate hikes will end soon. Additionally, US Federal Reserve announced to continue with its plan to shrink its asset portfolio.
Moreover, yields are rising on anticipation that Fed will continue to remain on its path of tightening monetary policy as Inflation still remains above 8% and wage growth is running at 5%. Market sentiments are hurt as Fed said rates could rise to higher levels than previously anticipated, when investors are already dealing with lot of uncertainty in the market. Market participants are worried that spillover from Geopolitical tension, rising energy cost and global monetary tightening to combat high inflation will weigh on economic outlook. In the recent meeting all the 3 major central banks – European Central Bank (ECB), US Federal Reserve and Bank of England raised their interest rates by 75bps to combat soaring inflation and signalled further rate hikes.
Additionally, in the coming week US CPI data is likely to show that inflation remained elevated and US Job report is likely to show that less number of people have filled for jobless claims. Strong labor market and soaring inflation will provide more room for Fed to hike rates. Additionally, investors will remain cautious ahead of US Midterm elections as control of congress in in stake. Republicans may take over the control of the U.S. House of Representatives, while Democrats retain a slim hope of keeping a majority in the Senate. Moreover, CPI data from India is anticipated to show that inflation remained above 6% for a 10th consecutive month and stayed higher than RBI’s comfort zone. Additionally, investors are worried that rising crude oil prices will hurt India’s import bill and add fire to soaring inflation.
Oil prices are rising on prospect of tightening supply in coming months due to OPEC+ decision to cut supply coupled with sanctions on Russian oil. Additionally, official data showed a bigger-than-expected draw in U.S. inventories during the week ended 28 th October 2022. Nonetheless, sharp upside in oil prices were capped on strong dollar and on growing concerns that high inflation and rising interest rates will slow global economic growth, weighing on crude demand. USDINR as long as it sustains above 81.90 levels it may rise again towards 83 in the coming week.
Immediate support lies near 82.20. A break above 83.00 may open doors for 83.50 levels. USIDNR pair continues to make higher highs and higher lows. For Monday, Rupee may depreciate amid strong dollar and weak global market sentiments. Further, surge in crude oil prices and concern over slower global economic growth will hurt rupee. USDINR (Nov) is likely to trade towards the level of 83.00
(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)