Rupee may appreciate amid decline in crude prices, optimistic market sentiments; USDINR to trade in this rage

Rupee to appreciate this week till 78.80 amid decline in crude oil prices and optimistic domestic market sentiments. Further, rupee may appreciate as the Reserve bank of India (RBI) hiked its key lending rate by 50bps.

Rupee may appreciate amid decline in crude prices, optimistic market sentiments; USDINR to trade in this rage
However, sharp gains may be prevented on strong dollar, concern over rising geopolitical tension between US and China over Taiwan and widening of trade deficit. Furthermore, investors will remain vigilant ahead of major economic data from the US and India to gauge economic health. CPI data from US and India is likely to show that inflation remained elevated in both countries forcing central banks to tighten their monetary policy. USDINR (Aug) as long as it sustains below 80.00 it may slip further till 78.80 this week.

By Raj Deepak Singh

Rupee appreciated in the week amid softening of crude oil prices, FII inflows and rise in risk appetite in the domestic markets. However, gains were restricted on disappointing macro-economic data and worries over rising geopolitical tension between US and China over Taiwan. India’s Trade deficit swelled to a record of $31 billion in July 2022 compared to $26.18 billion in previous month Dollar index pared all its losses amid surge in US treasury yields and pessimistic domestic markets. Demand for safe haven increased as US house speaker Nancy Pelosi visit to Taiwan added to geopolitical tension. Additionally, hawkish statements from Fed officials supported Greenback.

Cleveland Fed President Mester said the Fed should raise interest rates to above 4% to help bring inflation down and aim to keep tightening through the first half of next year. However, sharp upside was capped on a mixed batch of economic data from the US. Growth at US manufacturing companies was its weakest in 2 years in July whereas US ISM non-manufacturing PMI rebounded in July ending 3 straight month declines. It showed that supply bottlenecks and price pressures eased

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We expect the rupee to appreciate this week till 78.80 amid decline in crude oil prices and optimistic domestic market sentiments. Further, rupee may appreciate as the Reserve bank of India (RBI) hiked its key lending rate by 50bps to 5.40%, a third consecutive hike to tame soaring inflation. Withdrawal of accommodative stance has been maintained to check inflation. India’s inflation has remained above the upper end of the central bank’s target this year. India’s CPI data showed inflation remained above 7% for a third consecutive month. All the 6 members of the Monetary Policy Committee unanimously voted for rate hike. Additionally, the central bank announced that the FY23 GDP growth forecast has been retained at 7.2%. 

However, sharp gains may be prevented on strong dollar, concern over rising geopolitical tension between US and China over Taiwan and widening of trade deficit. Furthermore, investors will remain vigilant ahead of major economic data from the US and India to gauge economic health. CPI data from US and India is likely to show that inflation remained elevated in both countries forcing central banks to tighten their monetary policy. USDINR (Aug) as long as it sustains below 80.00 it may slip further till 78.80 this week.

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(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)

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