By Dilip Parmar
The Indian rupee marked the fifth weekly gain in a row, earlier this kind of move was seen in November 2021, following a corrective move in the greenback since mid-December while Asian currencies strengthen after China re-opening. The dollar inflows in the debt markets and direct investment in start-ups further added gains in the rupee. In the week gone, spot USDINR fell 21 paise or 0.26% to 81.125. Spot USDINR could further decline in the coming days following broad-based weakness in the greenback and expectation of foreign fund inflows through Adani FPO and PSU bank bond issuance. Technically, the bearish trend could continue in the near term as it has formed an inverted hammer on the weekly chart.
The pair may head towards 80.50 in the medium term with resistance remaining at 81.95. However, the oversold condition on an hourly chart ahead of the January month expiry can lead to a short covering bounce and bargain buying from the traders before breaching 80.50. The dollar ended lower after Federal Reserve officials left intact expectations that the central bank is poised to slow the pace of its rate hikes again. The dollar looks set to weaken further as China reopens, risk assets recover, better-than-expected growth in Europe and China, and policy normalization in Japan. The greenback may also remain under pressure versus havens due to US debt limit concerns.
CFTC Position: In the Forex market, the flow was skewed towards risk reduction. Speculators covered shorts in yen (12.4k), sterling (4.8k), CAD (3.7k), and MXN (4.7k) while selling longs in euro (8k) and kiwi (1.3k.) The aggregate dollar short rose by about $800 million on the week. EM stocks extended gains as most of the Federal Reserve members support a 25bps hike next meeting before the onset of the pre-FOMC blackout.
What to Watch: In China, business and data will pause for the Lunar New Year. India also has a truncated week with the Republic day holiday on Thursday. As the Fed enters the blackout period ahead of its Jan.31-Feb.1 meeting, markets have priced in a smaller (25bps) hike. The traders will eye on upcoming PCE deflator, the Fed’s preferred inflation gauge will bolster that market view, at least at first glance.
(Dilip Parmar, Research Analyst, HDFC Securities. Views expressed are the author’s own. Please consult your investment advisor before investing.)