By Gaurang Somaiya
Rupee remained a bit choppy this week and volatility remained elevated after the release of inflation numbers on the domestic as well as global front. There has been quite a bit of see-saw that has been seen in the market and that is led by a couple of important events that unfolded on the global front. At the start of the month, we had robust private payroll numbers that led to strength in the dollar against its major crosses but slower inflation number just turned the table around for the greenback and it retraced to fall below the 100 mark.
This week, on the domestic front, no major cues are lined up and it will be the global factors and the move in the dollar that will guide the Indian Rupee. The Dollar Index is now below the psychological mark of 100 and further weakness in the greenback could trigger an up move in the major crosses including the rupee. From the US, retail sales and Philly fed manufacturing Index will be important to watch. Weaker-than-expected economic number could weigh on the dollar and thereby help the rupee extend gains. We expect the USDINR(Spot) to trade sideways with a negative bias and quote in the range of Rs 81.80 and Rs 82.80.
Global Currencies
The dollar fell to the lowest level in 15-months on back slower growth in inflation in the US. Data showed inflation grew at 3% in June in comparison to 4% rise in the previous month. Ahead of the release of the data most market participants remained cautious and volatility remained low. After the release of the economic data the dollar index fell below the 100 mark and seems to be sustaining below it. From the US, except inflation no other economic data was released and did not have much of an impact on the market. This week, market participants will be keeping an eye on the retail sales and Philly fed manufacturing Index from the US. Broadly, we expect the dollar to remain under pressure and quote in the range of 97.80 and 101.20.
A sharp up move was seen in both these major crosses Euro and Pound; the move was driven more by weakness in the dollar than by its own fundamentals. From the UK, employment and GDP numbers were released and data showed the unemployment rate in the UK rose marginally to 4% in comparison to 3.8%. At the same time, the UK economy shrank less-than-expected suggesting that the widely forecasted slowdown caused by high inflation and higher interest rate was not underway. This week, inflation and retail sales numbers from the UK will be important to watch; expectation is that inflation could come in marginally lower and that could weigh on the currency a bit after rallying in the last few weeks.
Japanese Yen was one of the volatile currencies amongst the major crosses following suspected intervention from the Bank of Japan. Market participants also have started to build expectations that policymakers that the BoJ may start to change their view on the deflationary mindset. We expect that volatility for the safe haven currency could continue to remain elevated this week as well. For the USDJPY, the pair could be trading in a wide range and in the zone of 137.50 and 140.50.
(Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services. Views expressed are the author’s own. Please consult your financial advisor before investing.)