By Raj Deepak Singh
Rupee appreciated in the week amid weakness in dollar and rise in risk appetite in the global markets. Further, rupee gained strength on softening of crude oil prices Dollar index slipped amid rise in risk appetite in the global markets and decline in US treasury yields. Yields fell after data showed US economy contracted again in second quarter fuelling speculation that Federal Reserve will not raise rate aggressively as expected. Even US Fed raised interest rates by 75bps on Wednesday, as was widely anticipated and comments from Powell spurred hopes for slower hiking path. He said another unusually large increase could be appropriate at next meeting i.e. in September and decision will depend on the data.
As the stance of monetary policy tightens further, it would become appropriate to slow the pace of increases while bank assess how cumulative policy adjustments are affecting the economy and inflation. We expect rupee to appreciate this week till 78.80 amid weak dollar and optimistic global market sentiments. Market sentiments improved after US Fed Chair Powell hinted that the pace of rate rises would eventually slow. Dollar is losing its steam as US Fed decided to raise interest rate by 75bps, which was widely anticipated but comments from US Fed Chairman Powell spurred hopes for slower hiking path.
Additionally, data showed US economy contracted again in second quarter fueling speculation that Federal Reserve will not raise rate aggressively as expected. Additionally, investors will remain vigilant ahead of Reserve bank of India (RBI) monetary policy meet, where central bank is likely to adopt aggressive measure to control soaring inflation. Meanwhile, sharp appreciation may be prevented as traders will remain cautious ahead of job data from US and bounce back in crude oil prices.
Crude Oil prices edged up on supply concerns. Additionally, all eyes turned to next meeting between OPEC and its allies. It is expected that group will consider keeping oil output unchanged for September. USDINR (Aug) was trading in a tight range of 79.80- 80.40 for couple of days. It has broken the support level of 79.80 and is trading below it. As long as it sustains below this level, it may slip further till 78.80 this week.
(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)