By Gaurang Soumiya
Rupee continued to trade in a narrow range for the last six weeks and volatility has been confined to the range of 82.80 and 83.50 despite uncertainty on the global front, broader strength in the dollar against its major crosses and heightened geopolitical tensions and FII funds outflow on the domestic front. On the domestic front, in the last couple of months’ fund outflow from the FIIs has been to the tune of over $3 billion from the Equity segment. Volatility for rupee is curtailed by active RBI intervention and latest data showed reserves currently stand at $583.5 billion down for the week ended 20th October.
This month, on the domestic front, inflation number will be important to watch as global crude oil prices have retraced sharply in the last few weeks. From the inflation number, market participants will be taking cues on what could be the stance of the RBI governor at the coming meeting. On the global front, after the FOMC policy statement, economic numbers from the US will be guiding the currency that has been stable for quite some time now following active RBI intervention. We expect the USDINR (Spot) to trade sideways, but with a positive bias and quote in the range of 82.80 and 83.80.
Global Currencies
The Dollar Index closed in the green for the third successive month following safe haven buying and better-than-expected economic number from the US. Volatility remained elevated as heightened geopolitical tension continued to keep market participants on the edge. The Fed released its policy statement and held rates unchanged for the second successive meeting, but kept open the possibility of further monetary tightening. The central bank could proceed carefully on future decisions amid signs that previous rate hikes will have an effect on the economy. US 10-year yields did retrace a bit after rallying to the highest level in 16-years and market participants are starting to discount that US interest rates could be nearing its peak.
Most economies until now have shown resilience in the face of higher rates, but until when this resilience remains is a question unanswered. It is not only the Fed, but also other central banks who remain data-dependent in their stance and this month too it will be the economic numbers from the US that is likely to trigger volatility for the dollar that has gained by over 3% in this year. This month, inflation along with employment numbers will be important to watch. The Fed, who remained “aggressively” hawkish for one of the longest period turned “Less” hawkish in November and this could keep gains capped for the dollar.
(Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services. Views expressed are author’s own. Please consult your financial advisor before investing.)
